How to Make a Secured Card Work for You

If you crave the convenience of credit cards but worry about getting in over your head, a secured credit card may provide an unexpected solution. While they’ve developed a reputation as an option only for those who need to build or repair credit, secured credit cards offer some unique wider benefits worthy of a second look.Couple Using Bank Card Online With a Laptop

What’s a secured credit card?

Unlike standard credit cards that allow you to borrow money up to your limit with no collateral, with secured cards you deposit an amount that’s equal to the credit limit you want. For example, for a credit limit of $1,500, you’d have to deposit $1,500 into an account with the issuing financial institution and pledge it as security.

When you’re out shopping in the real world, secured cards work just like any other credit card, and no one can tell the difference. Charge purchases as you would on a traditional, unsecured card and receive a monthly billing statement.

Why choose a secured credit card?

Most people are aware that secured credit cards provide an effective way to rebuild or establish credit, but they can also work well for those without credit issues because they offer:

  • Increased savings: Your security deposit may earn interest or dividends that grow steadily with no effort on your part. And you can make additional deposits to your account as desired to reach savings goals faster.
  • Peace of mind: You’ll never have to worry about borrowing more than you can handle because the entire amount of your credit limit is already set aside as a safety net to protect you.
  • Flexibility: Unlike a debit card that withdraws funds from your checking account instantly with each purchase, you’ll have a little more time to pay. You’re always in control.

The downsides of some secured cards can include high interest rates and annual fees, but this isn’t always the case, so it pays to shop around. Financial institutions like SchoolsFirst Federal Credit Union offer share-secured cards with no annual fee, competitive rates and a 25-day interest-free grace period each billing cycle. You also benefit from perks such as extended warranties, security protections, and travel and emergency assistance services.

How to make the most of your secured card
To keep expenses low while boosting your credit score:

  • Always pay your credit card bill on time with no exceptions.
  • Pay your balance in full during the grace period whenever possible to avoid interest charges.
  • Try not to max out your card or even get close to your credit limit. Ideally, charge no more than 30% or so of your credit limit to earn top points with the credit bureaus.
  • Make sure your financial institution reports your card activity to the three major credit card bureaus so your responsible card use works to raise your scores.

As you become more confident handling credit cards, you may want to eventually trade up to an unsecured card for lower rates and higher limits. But if you’ve found a secured credit card with no fees and reasonable rates, it really may be all you need for many years to come.


This article is reprinted courtesy of NerdWallet.

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Extra Credit provides general information to help improve our Member’s financial lives. Every situation is different, so please contact us for guidance on your specific needs. The advice provided in Extra Credit is not intended to serve as a substitute for speaking to a loan representative, financial advisor, or BALANCE counselor who can help tailor a solution for you.

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