[Update 2021.7] After Bank of America upgraded a batch of its own credit cards, it also updated its secured cards. They now offer the same structure as the regular cards: a customizable 3% cash back category and unlimited 1.5% cash back. In addition, the biggest advantage of BofA’s secured cards is that they can be upgraded to regular BofA credit cards, and both upgraded versions are quite useful. If you do not have an SSN, you can ask at a local BofA branch. In general, when opening a checking account, they may also allow you to apply for a secured card at the same time.

Unfortunately, secured cards do not have sign-up bonuses. If you already have some credit history, I recommend applying directly for the regular versions, which do have sign-up bonuses.

About Secured Credit Cards

A secured credit card is a special type of credit card. With a typical credit card (or charge card), you borrow money first, spend it, and then pay it back. With a secured card, you first deposit a certain amount of money into the card as a deposit, and then you can use it. The spending limit on a secured card is usually equal to the deposit. If you want a secured card that can handle a single $1,000 purchase, you need to deposit $1,000 into the secured card in advance.

Secured cards look somewhat similar to prepaid cards in that both require you to put money in first. The biggest difference is that with a secured card, after your statement is issued each month, you need to pay off the amount you spent. This is similar to a credit card, and interest will accrue if you do not pay it off in full. With a prepaid card, you can only spend what you have loaded onto it, so interest is not an issue. The difference between a secured card and a credit card is, of course, that one requires a deposit and the other does not. In addition, if you owe money on a credit card and do not pay it back, the bank can only try to collect through collections; if you owe money on a secured card and do not pay it back, the bank will deduct it directly from your deposit.

From the perspective of credit history, a secured card is the same as a credit card: payment and delinquency information is reported to the three credit bureaus. Therefore, payments on a secured card also affect your credit score. Paying on time can help your score increase, while failing to pay what you owe will hurt your score. Prepaid cards are not reported to the credit bureaus because you are spending your own money and there is no borrowing involved. Therefore, secured cards are often used by people with poor credit or no credit history to gradually build or repair their credit history.

In short, a secured card can be described as a product somewhere between a credit card and a prepaid card.

Applying for and Using Secured Cards

From an application standpoint, applying for a prepaid card generally does not require a hard pull. Whether a secured card requires a hard pull depends on the bank’s requirements, while credit cards generally do involve a hard pull on your credit report. Online applications for secured cards usually require an SSN, while applying in person at a bank may not. Some secured cards require you to have a bank account (checking or savings) when you apply.

In terms of difficulty, secured cards also fall between prepaid cards and credit cards. Because they are backed by a deposit, secured cards place less emphasis on your income.

The general process is as follows:

  • Apply for a secured card: Applying for a secured card is similar to applying for a credit card. You can apply online, by phone, or in person. The bank may pull your credit report to see whether you qualify for a secured card.
  • Make the deposit: Usually, when you apply, you provide your bank account number and routing number at the same time. After approval, the bank will automatically pull the money from your bank account. If there is not enough money in your bank account, your secured card application may very likely be denied.
  • Receive the card: Banks usually wait until your deposit has arrived before mailing out the secured card. After you receive and activate the card, you can use it. The credit limit is generally equal to your deposit amount.
  • Use the card: Use the card each month, and pay either the statement balance or pay early. If you feel the limit is not enough, some cards allow you to increase the limit by depositing more money. Be sure to pay your bill; otherwise, you will be charged interest.
  • Upgrade: After using a secured card for a while, it can be upgraded to a regular credit card, and many banks offer this feature. After the upgrade, the deposit will be automatically refunded. Different banks have different review periods and will decide whether to upgrade you based on your usage.

Recommended Secured Cards

Many banks issue secured cards, and their benefits and annual fees vary. Personally, I recommend choosing a larger bank when applying for a secured card. On the one hand, there tend to be fewer pitfalls and customer service is more professional; on the other hand, after using a secured card, you may be able to upgrade it to a regular credit card from that bank. Credit cards from major banks are relatively stable and often have decent benefits. That said, secured cards generally do not have much in the way of sign-up bonuses, and their benefits are relatively weaker than those of regular credit cards.

Here are a few secured cards that I think are good options.

Discover it Secured

The biggest feature of this card is that it offers cash back, and the rewards are doubled in the first year. In other words, in the first year you effectively get 4% cash back at restaurants and gas stations, and 2% cash back on other purchases. Among secured cards, this is basically far ahead of the pack. The combination of no annual fee and no foreign transaction fee is also a big step up compared with other secured cards that charge annual fees. The downside is that you need to provide an SSN to apply, and Discover does not have physical bank branches in most states, so you cannot avoid the SSN requirement by applying in person. In addition, you must enter your bank information when applying, so be prepared for that.

  • Sign-up bonus: All cash back is doubled in the first year
  • Cash back on purchases: 2% cash back at restaurants and gas stations; 1% cash back on other purchases
  • Credit limit range: $200-$2,500
  • No FTF foreign transaction fee
  • No annual fee
  • Discover Secured application link >>

Bank of America Secured

After BofA upgraded a batch of its own credit cards, it also updated its secured cards. These secured cards have in common that the credit limit can be as high as $4,900 through deposits, with a minimum of $200. They also include a free FICO score, which is nice. The biggest advantage of BofA’s secured cards is that they can be upgraded to regular BofA credit cards, and both upgraded versions are quite useful. BofA generally reviews the account after you have used the secured card for one year, and you can also proactively contact the bank to see whether an upgrade option is available. In addition, when you go to BofA to open a checking account, the banker will generally recommend this card to you. There is a good chance you can get approved without an SSN, so if you are interested, you can try visiting a local BofA branch.

Citi Secured

This card is also very basic: no annual fee, but no cash back either. You can get a credit limit of $200-$2,500 by making a deposit. There is generally a review after you have used the secured card for one year, and you can also contact the bank proactively to see whether any upgrade options are available. In addition, when you go to Citi to open a checking account, bankers will usually recommend this card to you. There is a good chance you can apply without an SSN, so if you are interested, you can try visiting a local Citi branch.

Capital One Secured

This card is also very basic: no annual fee, but no cash back either. You can get a credit limit of $200-$1,000 by making a deposit. If you have a good credit history, depositing $49/$99 can get you a $200 credit limit.

Quick Comparison

Discover’s official website provides a comparison of several common secured cards. Although it is certainly biased toward its own products, it does list most of the basic factors worth comparing, so you can use it as a reference.

Should You Apply for a Secured Card?

In my view, secured cards are not especially useful for Chinese readers. On the one hand, Chinese consumers tend to plan their spending carefully and rarely run into situations where they cannot pay what they owe. On the other hand, Chinese consumers generally have relatively good credit histories, so they do not necessarily need to build credit through a secured card. In addition, applying for a secured card itself requires an SSN, so if you have an SSN, I recommend simply applying for a credit card directly. For example, even if you have no credit history, if you have income, applying for a Discover it is still better than applying for a Discover secured card. For international students who just arrived in the U.S. and do not have an SSN, if you have opened a bank checking account, starting with a secured card to build credit history is also fine. However, I recommend applying for the Deserve EDU card. This card can also be applied for without an SSN; you only need to provide proof of bank deposits and identity documents. It also offers 1% cash back, which is much better than a plain secured card.

To sum up:

  • No SSN, no income, student: Applying for Deserve EDU is better, though applying for a secured card is also fine
  • No SSN, no income, other status: Go to a bank and apply for the secured cards mentioned in this article
  • Have SSN, no credit history: Applying for starter credit cards such as Discover it and BofA Cash Rewards is better
  • Have SSN, very poor credit history: Apply for the secured cards mentioned in this article and slowly rebuild your credit history
  • Have SSN, decent credit history: Just apply for a regular credit card