Pros and Cons of Secured Credit Cards Explained

Today, credit plays a central role in our financial decisions. In fact, it affects everything from getting loans to negotiating interest rates. Secured credit cards can be the secret weapon for military personnel, recruits, veterans, and their families, to achieve financial stability. They offer a straightforward and effective way to build credit, along with several benefits that align with financial goals in the military. Keep reading to uncover the pros and cons of secured credit cards.

What is a Secured Credit Card?

Secured credit cards are like a steady compass, guiding you on the right path towards building or rebuilding your credit. Unlike traditional credit cards which offer credit based on your creditworthiness, secured cards require an upfront cash deposit that serves as collateral. This deposit sets your credit limit; for example, if you deposit $400, the credit limit will also be $400.

This cash deposit also makes it easier to get approved, especially if you happen to be starting fresh or have less-than-perfect credit history. That’s because the issuer faces less risk since you have already “secured” your account with a safety net. Then, once you gain access to the card, you simply use it like any other credit card: make purchases, pay your bills on time, and stay within your spending limit.

The best secured credit cards report your responsible credit activity to the three major credit bureaus (TransUnion, Equifax, and Experian). This behavior is documented and helps you build a strong credit history. Consider it a tactical approach to strengthening your financial profile.

Pros of Secured Credit Cards:

You might be asking yourself, are secured credit cards a good idea? In order to decide, it’s important to compare the advantages and disadvantages. Let’s start with the benefits of secured credit cards:

• Building Credit — If you want to learn how to build credit in the military, you’re in luck. Especially because the main purpose of a secured credit card is to help you build (or rebuild) your credit. Having your responsible credit behavior reported to the credit bureaus means you can increase your credit score over time.
• Easy Approval — Secured credit cards are typically easier to obtain due to their required cash deposit. This makes them accessible to individuals with poor or no credit history, allowing them to start establishing their creditworthiness.
• Controlled Spending — Because your credit limit is equal to your cash deposit, it’s easy to spend wisely and avoid accumulating debt. Therefore, you can feel safe knowing that your financial foundation is solid and sturdy.
• Advancing to Unsecured Status — Many secured credit cards offer the opportunity to transition to an unsecured card after you prove your responsibility. By consistently paying in full and managing your credit, you could earn an upgrade that doesn’t require an upfront deposit and has additional card perks.
• Instilling Financial Discipline — Utilizing a secured credit card helps you create strong credit habits, such as making on-time payments and maintaining low balances. These practices are important for keeping your financial profile in good shape.

Cons of Secured Credit Cards:

Although they can be highly effective for building credit, secured credit cards have their own set of challenges to consider (just like any other financial tool). Here are the potential disadvantages:

• Deposit Requirement — As mentioned, secured cards usually demand a cash deposit upfront. While this acts as a financial safeguard, the requirement means you will need to set aside some money that might have been useful for other things.
• Fewer Rewards — A downside of secured credit cards is that they don’t have many bonuses or rewards. Unlike traditional credit cards that may offer points, cashback, or travel miles, secured cards have more limited offerings. This can make them less appealing for those who want to get more value from their spending.
• Low Credit Limits — By nature, the credit limits for secured credit cards are much smaller than those of unsecured credit cards. This can feel restricting, especially if you need more room for larger expenses or unexpected costs.
• Fees —Some (but not all) secured credit cards have fees such as annual fees, setup fees, or monthly maintenance charges. Make sure to review the details carefully to avoid being ambushed by unexpected costs.
• Possible Negative Impact on Credit — Like any credit card, misusing a secured card can affect your credit score. Think of it like maintaining your equipment: without proper upkeep and attention, it can fail and cause issues. Missing payments or exceeding your credit limit can damage your credit, limiting future financial opportunities.

Where Can I Get the Best Secured Credit Card in the Military?

Secured credit cards can be a strategic asset for building or rebuilding your credit. Though they have some drawbacks, their benefits often outweigh the negatives, especially when you’re committed to strengthening your financial position.

If you are thinking about getting a secured credit card, check out the Credit Builder Secured Visa® Credit Card from Armed Forces Bank. Here are some reasons why it's the best credit card for military personnel and their families:

• No application fee
• No over-the-limit fee
• No annual fee
• Adjustable credit limit (set your limit between $300 and $3,000)
• Equipped with EMV chip technology for fortified security
• Automatic reporting to TransUnion, Equifax, and Experian

Ready to take charge of your credit? Apply now and start your mission to build stronger credit with Armed Forces Bank's Credit Builder Card.

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Need help with your strategy? Use our Credit Assessment Calculator to evaluate your current credit health and the Pay Off Credit Card Calculator to create a plan for repaying your balance.

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Subject to credit approval. Transaction and Penalty fees apply. Credit Builder Savings account required. $5.00 quarterly fee charged to the Credit Builder Savings account if not enrolled in eStatements. Improved credit score is not guaranteed. Credit score is determined by credit reporting agencies based on multiple factors, but satisfactory performance on a credit card product can improve your credit score. Default on a credit card, including missed or late payments can damage your credit score. Once added, funds cannot be withdrawn from the Credit Builder Savings account and the Credit Builder Card without closing the savings account and the credit card.