Secured Credit Cards
A secured credit card is designed for people with limited or bad credit history but they are not offered in Australia. Here’s what your options are.
Secured credit cards are common in the United States, Canada and other parts of the world. They give people a way to build or improve credit history by offering access to credit in exchange for a cash deposit or other security.
In Australia, all credit cards are unsecured accounts. But there are some alternatives you can consider if you want to build credit or increase your chance of approval.
What is a secured credit card?
Secured credit cards give people access to credit when they provide a cash deposit, linked savings account or other asset. This "security" helps reduce the risk for lenders and can help people build or improve their credit history.
Similar to other credit cards, you get a regular statement and need to pay at least the minimum amount. Interest charges also apply to any unpaid balance on the card. But if you missed a repayment or defaulted on a secured card, the lender could use part of the security to recover the debt.
Features of a secured credit card
- Credit limit. A secured credit card is a line of credit from a bank. A cash deposit of your own money is typically used as a security. The financial institution then issues a credit limit based on the size of the deposit. It's typically relatively low to start with (e.g. $100 or $200).
- Security. The security is held in an account by the credit card provider for a period of time (18 months for example). The security deposit does not earn interest.
- Interest-free days. Get up to 25 days interest free on your card purchases when you pay back the card balance by the statement due date.
- Interest charges. Interest charges apply on any balance you have not paid by the statement due date.
- Credit tracking. The credit card provider will send reports to credit agencies about your repayment history.
Alternatives to secured credit cards in Australia
Depending on why you want the account, here are some options you could consider on the Australian market:
- Secured loans
A secured personal loan lets you borrow a set amount of money over a fixed term. Similar to a secured credit card, the loan's value is tied to an asset, such as a car, home or even savings you have in a term deposit account. This security means lenders may consider people with bad credit or casual employment.
- Low-limit credit cards
The secured credit cards that are offered overseas typically have low credit limits. In Australia, there are cards with minimum credit limits between $500 and $2,000 that could help you manage repayments. Just keep in mind that you typically need to have good credit history and a regular income to get a credit card.
- No interest, flat fee credit cards
These credit cards don't charge interest and have a flat monthly fee instead, similar to buy now pay later (BNPL). But unlike most BNPL accounts, these cards add to your credit report and can help build up credit history. So the account structure and relatively low credit limits offered on these cards make them another alternative to a secured card. They also have low credit limits.
- Short-term loans
Also known as payday loans, short-term loans allow you to borrow amounts up to around $2,500. They typically offer easier approval options for people with poor credit history compared to other types of credit. But they can also have very high fees that may increase the risk of debt (which could hurt your credit score).
- Credit repair
If your aim is to rebuild credit, a credit repair agency may be able to help by removing default listings from your credit file if there's been an error in the creditor's reporting process.
How does a secured credit card compare to a secured home loan?
You can compare the differences between these two lines of credit below:
|Secured credit card||Line of credit home loan|
|Security||Cash deposit||Property mortgage|
|Credit limit||Set by cash security||Up to a percentage of the loan-to-value ration (LVR)|
|Eligibility||Bad credit||Good credit|
|Availability||Not available in Australia||Available in Australia|
US secured credit card providers
- Capital One Secured Mastercard
- First Progress Platinum Elite Secured Mastercard
- First Progress Platinum Prestige Secured Mastercard
- USAA Secured Platinum Card
- Citi Secured Mastercard
- Wells Fargo Secured Visa Card
- Bank of America Secured Credit Card
Frequently asked questions
Who are secured credit cards suited to?
Secured credit cards are usually designed for cardholders who have bad credit and want to use a card to rebuild their credit history. Unfortunately, as they're not available in Australia at the time of writing, you'll need to consider other alternatives.
Why aren’t secured credit cards provided in Australia?
Due to the credit laws secured credit cards are not offered by Australian credit card providers.
Some Australian banks, such as ANZ Bank, offer secured credit cards via some of their US branches, in Guam and in Singapore but not within Australia.
Where are secured credit cards available?
Secured credit cards are available from several lenders and credit card providers across North America. To a much lesser extent, these types of accounts can also be found in Great Britain and Canada, but these are becoming rarer. Singapore and the Philippines also have a small selection of secured credit cards from a couple of providers.
How does a secured credit card differ from a secured debit card?
A secured credit card offers a line of credit that you can spend and repay over time, with a cash deposit or other security linked to the account. As a form of credit, it helps build your credit history and can affect your credit score.
In comparison, a debit card is linked to your transaction account and allows you to spend money you earn and save. As debit cards are not a form of credit, it's easy to apply and open an account even if you have a bad credit score or are bankrupt. It also doesn't affect your credit score.
Can secured credit cards be used for bankrupt people to rebuild their credit record?
The US uses a credit scoring system for banks and lenders to determine how responsible a customer is with their finances. It’s common for bankrupt people to apply for a secured credit card to help improve their credit history.
A secured credit card provider sends reports to credit reporting agencies about your repayment history. If you have a good repayment history, it will help improve your credit history.
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