Best Secured Credit Cards of April 2024 – Forbes Advisor – Technologist

Secured and unsecured cards function basically the same, but there are a few differences you should be aware of.

Alternatives to Secured Credit Cards

A few alternatives to secured credit cards may be better for certain borrowers. Let’s take a look at a few options.

Unsecured Cards for Bad Credit

Some card issuers offer credit cards specifically for customers with limited, fair or poor credit. If receiving approval for an unsecured card is important to you, options exist—they aren’t always ideal and may offer terms that don’t favor the borrower’s best financial interests.

The Capital One QuicksilverOne Cash Rewards Credit Card is available to people with limited or fair credit, and though it charges a $39 annual fee (rates & fees), the card also earns 1.5% cash back on every purchase and 5% cash back on hotels and rental cars booked through Capital One Travel.

Submission of a credit card application usually results in a hard credit check. If you are denied, try waiting to apply for the next card. Your credit score may suffer if you apply for too many credit cards in a short period of time. Many credit cards offer a preapproval tool to help you determine if you’re likely to be approved.

Prepaid Debit Cards

Some people may not want to own a credit card, and that’s okay. If a card is necessary to make a purchase but not needed to build credit, prepaid cards can be a good alternative.

Prepaid cards are loaded with cash, similar to a gift card. These cards can be used to purchase something at a store or online in the same way a credit card is used. Some can even be used to make ATM withdrawals. The amount available depends on how much the cardholder deposits onto the card. Deposits can typically be made in cash, by bank transfer or using direct deposit.

One downside to prepaid cards is that purchase activity isn’t reported to the credit bureaus. If you’re trying to build your credit, prepaid cards won’t help you get there. Another downside is security. Most prepaid debit cards are treated like cash, and if you lose it or if someone steals the card, you may not be able to get your money back.

Credit-Builder Loans

Credit-builder loans provide “training wheels” for building credit without using a credit card.

Unlike personal loans, which give borrowers money right away, credit-builder loans hold a predetermined amount of money in an account while the borrower makes additional monthly installments to pay off the loan. The lender reports the borrower’s payment activity to credit bureaus over the course of the loan. On-time payments help the borrower build a good credit score.

Most lenders still charge interest for credit-builder loans. This means borrowers are making payments on the principal balance and paying interest on top.

A secured credit card can help avoid interest as long as the balance is paid in full every month.

Personal Loans

Personal loans have many uses, including consolidating credit card debt, paying for an unexpected expense or financing a larger purchase.

Personal loans can help users build credit, just like credit cards with on time payments. They also add variety to the types of credit in a credit history. Using a personal loan to consolidate credit card debt can help cardholders reduce credit utilization.

Personal loans usually charge interest, although rates are lower than credit cards. A main difference is personal loans do not offer grace periods during which a balance can be paid down without incurring interest charges. Personal loans also divide the principal and interest into equal payments based on the terms you chose, but can usually be paid off early.