A credit card is the quickest way to building good credit. However, the catch is that you cannot get a good credit card without a good credit score. So, how does one escape this paradox of applying for building a good credit using cards that are difficult to get due to a bad credit score? This is where secured credit cards come in. These types of credit cards require you to make a cash deposit before you open the account.

How secured credit cards work
The cash deposit reduces the risk of the credit card issuer as they can take your money from the deposit in case you are not able to pay the credit card bill. This is why secured credit cards are available to people with bad credit scores. So, what happens to the $500 deposit even if you paid your bills on time? They can be used to improve your credit score, and if you maintain your streak of paying bills on time, you may qualify for unsecured credit cards.

Secured vs. unsecured vs. prepaid credit cards
The main difference between secured and unsecured credit cards is the credit score and initial deposit. While you don’t pay an initial deposit but need a good credit score for using an unsecured credit card, secured credit cards can be used with a bad credit score and an initial deposit. People are also often confused about the differences between secured and prepaid credit cards as they have similar terms of use. Prepaid cards require you to deposit an amount that the issuers then use to pay off your bills.

Secured credit cards are a good way to improve your credit by paying your bills on time and using initial deposit if you are not able to pay the credit card bill due to a prior financial commitment. A few things you need to know before you apply for secured credit cards are

• Not all secured credit cards are equal
  It might be easy to get secured cards, but if you want to rebuild and establish credit, make sure that you apply for those cards that report to the three major credit bureaus: Equifax, Transunion, and Experian.
• Credit history matters
  Although it’s established that these cards are usually applied for building credit, some credit cards issuers will still check your credit history no matter how bad. They will perform a “hard inquiry” to see if you have defaulted on any payments in the past or if there are any uncleared dues.
• Deposit against credit card
  Even though you have made a deposit against your credit card, you cannot use that deposit to pay your bill. The amount is used as a security deposit in case you fail to pay the bill. You will get the deposit amount back if you close your account or upgrade to an unsecured credit card.
• Higher interest rates
  This can be seen as a disadvantage against secured credit cards. Such cards attract higher interest rates. Hence, it is recommended to pay your bills on time to avoid paying for late fees with surging interest rates.
• Credit card act
  Find out if your issuer puts the annual fee and processing on the first bill or subtracts it from the security deposit. The CARD Act of 2009 limits these fees to 25% of the credit line.

The best secured credit cards that you can choose from are

• Discover it® Secured
  The card is known for its rewards and upgrading. With an annual fee of $0 and variable APR of 25.24%, the card allows an intro APR of 10.99% on balance transfers for six months. The introductory APR is a low rate APR offered as an incentive for a specific period by the issuer You need to have a credit score between 350 and 629 to apply for Discover it® Secured card. Also, you need to deposit $200 and the maximum credit limit offered is $2500.
• Capital One ® Secured Mastercard®
  With a $0 and annual fee variable APR of 26.99%, the Capital One® Secured Mastercard® can be a good option if you are applying for the first time. Unlike most secured credit cards, this one offers you a credit limit of $200 on depositing $49, $99, or $200. It also allows you to pay for the deposit in installments. You need to have a savings or checking account to qualify for this credit card. The recommended credit score is between 350 and 629.
• OpenSky ® Secured Visa ® Credit Card
  With an annual fee of $35, the OpenSky® Secured Visa® Credit Card has a variable APR 19.64% but does not offer an intro APR. The recommended credit score is between 350 and 689. One of the best things about for this card is that issuers don’t check your credit score and do not require you to have a checking account. You can make a deposit of $200 to a maximum of $3000 and pay your bills through a debit card, wire transfer, check or money order.
• DCU Visa® Platinum Secured Credit Card
  This card has a regular variable APR of 13.75%, which is one of the lowest among other secured credit cards. It is also known for its low fees and interest rates. It has a wide range of recommended credit score between 350 and 850. However, the minimum deposit is $500, which is high when compared with other credit cards.
• Green Dot primor ® Visa ® Gold Secured Credit Card
  The card is known for offering the lowest interest rate of 9.99%. This secured credit card has an annual fee of $49 and people with both poor or excellent credit score of 350 to 850 can apply for this card. This card allows a credit limit that’s as high as $5000. It offers credit cards even if you have a bad credit score, but with interest rates as high as 25%.
• Navy Federal Credit Union ® nRewards ® Secured Credit Card
  If you serve in the military, then this card might be the right choice for you. It does not require an annual fee of $0 but does a require a security deposit. Since it is a rewards credit card, you are offered one point per dollar spent. The points can be later redeemed for cash back, gift cards or merchandise. It requires you to have a credit score ranging between 350 to 689. The account gets upgraded to unsecured status with good payment behavior.
• Armed Forces Bank Credit Builder Secured Visa ® Credit Card
  With an annual fee of $25 and a regular variable APR of 23.24%. As the name suggests, the card allows you to increase your credit limit by incrementing your deposit in multiples of $50. The minimum deposit is $300. This can be seen as an advantage as most of the other credit cards do not allow you to increase your credit limit. Like other secured credit cards, it requires you to have a credit score between 350 to 689.

So, whether you are applying for credit cards for the first time or looking to rebuild your credit score after a setback, secured credit cards can be your best bet. Make sure that you read reviews of the issuer and their credit union reports before choosing a secured credit card.