Like 99% of finance questions, the answer depends on the person.While a secured credit card may be the solution for one person, it’s not necessarily the solution for another.
First of all, what is a secured credit card? Most credit cards you think of are unsecured credit cards. These do not require a security deposit, and the credit card issuer more or less just hopes that you’ll pay your bill. A secured credit card on the other hand, is a card that requires a security deposit. Some cards are different than others, but for the most part your deposit is your credit limit. You do eventually get your deposit back once you change to an unsecured card, or cancel your account.
The biggest downside to a secured credit card is the fact that you need to have enough money on hand to pay the security deposit. If you don’t have enough money, you’ll need to choose a different option. The deposit is not and can not be used as your main source of payment, you must provide additional payments for your usage. That means that if you want to spend $100, you need $100 for the security deposit, plus another $100 for spending. If you don’t pay off your full balance, you will be charged interest.
I think charging interest is quite stupid because for all you know, they’re just using your money and making you pay for it twice. What you get out of a secured credit card is a credit score. If you have bad or no credit history, a secured card is an easy way to get one. It is low risk for the company, as they have a security deposit if you don’t pay, and you get a credit score, allowing you to eventually get an unsecured card.
Be careful about which secured card you choose though. Many charge annual fees and offer no rewards, but there is one card that fixes that. The Discover It secured card has no annual fee, and gives you the same rewards you get from unsecured Discover it.