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What is a Secured Credit Card and How Do They Work?


Man holding credit card while on laptop

I grew up in a time when it was still okay to mail credit card offers to 17 ½ year olds. I was a teller at the time and distinctly remember asking myself, “I’m not even 18, why am I getting this, is it legal?” Without financial education being taught in every school, it’s easy to imagine how young people could easily fall into a bad situation. The simple fact is, building a solid credit score and credit history is no longer a choice; we need good credit when we apply for most apartments and many jobs. Additionally, having a solid established credit history will prepare us for life’s bigger ticket items, such as the purchase of a house, and could result in thousands of dollars in savings because of a much lower rate. Luckily, my grandparents had stellar credit and co-signed a small $500 secured personal loan for me to establish my own credit history. But what other options do individuals have to kick off and establish credit history?

The path to an excellent credit score is not linear or the same for everyone. Usually when we start out, the reason we apply for credit is because of an inherent need, such as paying for college or getting a loan for our first quality car. With so many different offers out there, the question is: Should we sign up for the first credit card offer we get? Increasingly important is the proactive approach to building credit and, naturally, credit cards can be a great first step. Navigating credit card options can be tricky and we’ve created a useful beginner’s guide (maybe link to Dave’s blog post) to reference for more information. An  option to explore, when we have no credit history, is a secured credit card.

A secured credit card is different than a standard (unsecured) credit card because it is backed by collateral, usually money put on hold within a savings account. Additionally, secured credit cards offer a lower annual percentage rate (APR) than an unsecured credit card which helps save money. It may be tempting to go for the cards which offer miles or points, but be sure to review the disclosures to see if there is an annual fee or what your APR would be.

At Service Credit Union, we offer two secured credit cards, both which have a minimum credit line of $500. We work with members to determine the best option based on their individual needs and goals.

Here are the two secured credit card options:

  1. 75% Secured Credit Card — Example credit line is $500 and $375 of savings account balance is on hold while the credit card is active.
  2. 100% Secured Credit Card — Example credit line is $500 and $500 of savings account balance is on hold while the credit card is active.

Keep in mind, building credit is not something that happens overnight. Making on-time payments and being aware of your outstanding balance(s) are important pieces of managing your credit. After proving to yourself and your lender that you can manage your secured credit card responsibly, you may be able to explore an unsecured card, freeing up your funds that have been on hold. If a secured credit card sounds like a worthwhile option for you, we have representatives available to start the application process anytime. Or, apply online by clicking “New Visa Card.”