Many immigrants find it hard to access certain services after arriving in the United States due to not having a credit history or a credit score. It’s a sort of chicken-and-egg problem in that you need a credit history to access credit, but you can’t build your credit history without using credit responsibly over time. That’s where options like secured credit cards can come in handy.
Remitly is committed to helping immigrants win at financial management while starting a new life in the US. In this article, we’ll take a look at how using secured credit cards to build credit is a good choice for newcomers. We’ll also explore the top three card options to get you on the right path.
Overview of secured credit cards in the US
A secured credit card is a credit-building device that is backed by a refundable security deposit, which acts as collateral for the cardholder. These cards are a great option for people who want to start establishing a credit history or boost a bad credit score. They are available to both immigrants and US citizens who may be looking to become financially independent. But how do they work?
Understanding secured credit cards
The key to a secured credit card is the security deposit. When opening a secured card, you must pay a certain amount upfront to guarantee the money you’ll be using on credit. The deposit amount will also be your credit limit moving forward. Unsecured cards don’t have this requirement, as credit card issuers can see that you’re a trustworthy borrower from your credit score.
Aside from this main difference, secured credit cards are very similar to unsecured alternatives. You can use them in the same way to make purchases and pay off your bills every month. Any amount that isn’t paid off on time will cause you to be charged higher interest, late fees, and other penalties.
Also, secured cards have a regular APR (Annual Percentage Rate), but many offer perks like cash back. The cash rewards rate could range from one card to another.
Importance of the security deposit
The security deposit on a secured credit card has a huge impact on how you can use your card. With unsecured cards, your spending limit is based on your credit score and history. Conversely, the security deposit that you put down on a secured card determines your limit. Typically, the minimum deposit is around $200 USD and can go as high as $5,000 USD.
How secured credit cards help build credit
To understand how a secured card helps you build credit in the US, let’s look at some key elements that influence the way credit scores are calculated.
The impact of credit limit on credit scores
One of the main factors affecting your credit score is credit utilization. This is usually expressed as a percentage and is calculated by dividing the amount you owe by your credit limit. The lower that percentage is, the better your credit score will be. This means that if your credit limit is low, your credit utilization will be higher, even if you spend the same amount each month.
For example, imagine two people who each spend $100 USD in a month. Person A has a credit limit of $400 USD, but Person B has a higher limit of $2,000 USD. This means that Person A has a credit utilization of 25%, whereas Person B’s is only 5%. Whether both make payments on time or not, this credit utilization will remain the same.
All this goes to show that the more you put into your security deposit, the faster your credit score will grow.
On-time payments and creditworthiness
Payment history makes up as much as 35% of your FICO credit score calculation. This means clearing outstanding debts on time matters. Make the effort to pay off your monthly bill consistently, and you’ll see your credit score rise over time.
But it’s not the end of the world if you miss a payment or make it late. With time, they will weigh less on your credit score calculation and be replaced by newer, hopefully more timely, payment history.
Considerations for choosing a secured credit card
Now that we know a bit more about how credit cards impact credit scores, we’ll examine the fees and perks that come with secured credit cards. Both can vary significantly from those associated with unsecured credit cards, so knowing the differences is essential.
Understanding annual fees and other charges
Secured cards tend to have more fees than unsecured cards. Both will often carry some kind of annual fee, but secured cards are more likely to have additional monthly maintenance fees, too. You might also have to pay fees for activation, balance checking, and credit increases, which might even cut into your credit limit. So, make sure you’re aware of all potential charges before making your choice.
Something else you should know about secured credit cards is that most have a fairly high interest rate compared to unsecured cards. Regular APRs on secured cards can be above 25%. This won’t be an issue if you keep up with your monthly payments, but any arrears or only clearing the minimum amount could be costly.
Evaluating credit card issuers
Many secured credit card issuers operate in the US, so how do you pick the right one? Consider the annual fees, minimum credit limits, and other associated fees, and factor these details into your decision.
Also, gauge the issuer’s reputation, especially regarding customer service. Understanding how they make reports to leading credit bureaus—like Equifax, TransUnion, or Experian—is another vital step.
Assessing secured card perks
Though their perks aren’t as enticing as unsecured options, many secured credit cards offer competitive perks like cash back or other customized cash rewards. Compare these benefits carefully and focus on the perks you will most likely take advantage of.
Best secured credit card picks for 2025
We’ve explored what to look out for when choosing a secured credit card. Now, let’s break down some top picks you might want to consider.
Discover it secured credit card
The Discover it secured credit card is intended for people with poor credit scores, ranging from 300 to 629. Here are some other important features:
- No annual fee, which is one of its big perks.
- Minimum security deposit is $200 USD, with a maximum of $2,500 USD.
- Variable interest rate of 27.24%.
As a bonus intro offer, any balance you transfer from another card to a new Discover it card will only be subject to a 10.99% APR for the first six months.
Other major perks include unlimited cash back at 1% and 2% on up to $1,000 USD spent at gas stations and restaurants per quarter. Discover also offers a dollar-for-dollar match on all the cash back you receive in your first year using the card.
After seven months, your account will be reviewed monthly to see if you’re eligible for an unsecured card.
Capital One Platinum secured card
The Capital One Platinum secured card is another good option intended for cardholders with a low credit score.
- The security deposit can be as low as $49 USD to earn a credit line of $200 USD.
- The maximum deposit and credit limit is $1,000.
- Fairly high interest rate at 29.74% variable APR.
After six months of responsible use, Capital One will begin assessing your account to determine whether you qualify for a higher credit limit without adding to your deposit.
When it comes to charges and perks, this card keeps it simple: there are no fees, but there are also no benefits like cash-back rewards. This straightforward card may be a good credit-builder option for those with less money to put towards the security deposit.
OpenSky Secured Visa credit card
If you’re completely new to the US, the OpenSky Secured Visa credit card may be a good pick. Not only is there no credit check for opening an account, but you don’t have to open a bank account since payments can be made via money order. However, you must still show that your monthly expenses do not exceed your monthly income.
- Has the lowest interest rate of the three at 24.64% variable APR.
- Attracts an annual fee of $35 USD.
- The security deposit can range from $200 to $3,000 USD.
This deposit can be paid in installments within the first 60 days of getting the card. It also offers up to 10% cash back at select retailers. But make sure that those retailers are ones you already use, or are conveniently located, to decide if that is worth it.
Advice on using secured credit cards wisely
There are many promising options to choose from, but the future of your credit score is all in how you use that secured credit card. It’s also important to plan early on how you’ll move up to an unsecured credit card.
Strategies for building credit fast
If you’re using a secured credit card specifically to build your credit, here are a few tips to help you reach your goal as fast as possible:
- Large security deposit: Put as much money into your security deposit as you can afford. Like we mentioned before, having a low credit utilization rate is a key factor in calculating your credit score. The higher your credit limit is, the more you can safely spend each month without raising this rate.
- Pay on time, all the time: Keep up with your payments and do everything you can to stay current on your account, even if you’re only making the minimum payments. Besides directly impacting your credit score, your payment history can indirectly determine if and when providers increase your credit limit.
- Use the card: Go out and make regular charges on your card. Secured credit cards that aren’t used often may be labeled inactive. This means your provider may lower your credit limit without warning. They may even cancel your card if you go for a few months without using it.
Transitioning from secured to unsecured cards
Once you’ve built up your credit through a secured credit card, start looking into your eligibility for unsecured cards. These can be a much less expensive source of credit with even better rewards and perks. Set yourself up for the best results by finding credit card issuers that offer both types of cards; your history with them may make it easier to graduate to an unsecured card.
FAQs
Why is a secured card an effective tool for building credit?
Secured credit cards are much more accessible to immigrants and people with low or no credit than unsecured cards. Since they are a legal credit-building product, using them responsibly will be reported to all three major US credit bureaus, raising your credit score over time.
How do secured credit cards affect your credit score and history?
Secured credit cards help you build your credit score and history by establishing your credit utilization rate, payment history, and overall creditworthiness over time.
What are the common approval requirements for secured cards?
The approval requirements for a secured card may differ between various credit card issuers. However, you will typically need to show valid ID proving you are at least 18 years old, proof of a physical address in the United States, a Social Security number or Individual Taxpayer ID Number (ITIN), and sufficient funds to pay the security deposit.
Which credit card helps build credit the fastest?
No one credit card will help you build credit faster than any other. However, if your credit score is low, secured credit cards are typically the most accessible way to build credit when used responsibly.