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Updated: May 23, 2023

Consider a Secured Credit Card


If you are struggling with bad credit, you can do some research on a secured credit card. In order to open a secured credit card, you must make an initial down payment against the card's credit limit.

What does a secured credit card entail?

Your credit limit will usually be a percentage of your security deposit or it may be the same as your deposit. Many banks will place your deposit into an interest-bearing savings account or CD until you close your account, are able to upgrade to an unsecured credit card, or default on your credit card balance.

Secured credit cards are used just like regular credit cards. Purchases reduce your available credit and you're required to make monthly payments on your balance. You can avoid paying finance charges by paying your balance in full each month if your card doesn't have a grace period. Just like regular credit cards, late payments and over-the-limit transactions are penalized with a fee.

Most people with bad credit use this type of credit card to build it back into good standing. Just make sure you pay your bills on time and use the card responsibly.

Ideally, you want to open a secured credit card where the down payment collects interest.

Why secured credit cards may be your only option

Lenders do not like opening new accounts for people who have a history of failing to pay their bills on time. Secured credit cards offer a solution for people who cannot open a credit card elsewhere. A lender feels safe opening a credit card account for you when a down payment is made. If you fail to make payments on your secured credit card, the lender will simply take the money you used as a down payment to pay the balance.