Secured credit cards aren’t available in Australia, but this is how they work and some of the alternatives you can consider
In Australia, all credit cards are unsecured lines of credit. Secured credit cards are common in the United States. This guide looks at the differences between secured and unsecured credit cards as well as options for getting access to credit if you have a default listing on your credit file.
What is a secured credit card?
A secured credit card lets you access the advantages of owning a credit card even if you’ve got a bad credit history. A secured credit card also lets you build your credit history.
Secured credit card credit limits are set by the cash security you can put down when you apply. This money sits in an account for a period of time and the funds do not earn interest.
You must make regular repayments and you will accrue interest on any unpaid balances. There is an interest free period if you pay your account in full each statement period. Using the card to withdraw money from an ATM will incur interest charges right away.
How does a secured credit card differ from a secured debit card?
Nearly everyone has a bank account and debit card. You can use the money in your account to shop and to get cash out at the ATM. Anyone can apply for a debit card. Secured credit cards are not available in Australia, all credit cards are unsecured products. You will need a good credit history to be eligible to apply for a credit card in Australia.
Just out of interest or if secured credit cards ever do enter the Australian market, some of the features include:
- Credit limit attached. A secured credit card is a line of credit from a bank. A cash deposit of your own money is used as a security. The financial institution issues a credit limit based on the size of the deposit. You’ll need to repay what you spend in addition to any interest charges.
- A debit card is linked to your transaction account. This is the account most people get their pay deposited into, use to make everyday purchases and ATM withdrawals. A secured credit card can be opened with a single cash deposit. You’re given a line of credit you can continue to use as long as you can make repayments. Debit cards and secured credit cards offer similar features at the checkout and online security features.
- Repayments. You must make regular repayments when you spend using a secured credit card.
- Bankruptcy option. You can apply for a debit card account if you’re bankrupt. However, some secured credit cards have an application requirement that you must not have been bankrupt in the past two years.
- Credit score. A secured credit card provider will report your regular repayments to credit reporting agencies, which can help improve your credit score.
How does a secured credit card compare to a line of credit home loan?
Here’s a simple look at secured credit cards next to line of credit home loans.
|Secured credit card||Line of credit home loan|
|Security||Cash deposit||Property mortgage|
|Credit limit||Set by cash security||Up to a % LVR|
|Eligibility||Bad credit||Good credit|
|Availability||Not available in Australia||Available in Australia|
Who are secured credit cards best suited to?
Secured credit cards are great if you have a default listing on your credit file and you want access to a credit account. This can be because you want a positive listing on your credit file, you’ve just arrived in a country, or simply as a way to make payments. Unfortunately, as they’re not available in Australia at the time of writing, you’ll need to consider other alternatives.
Features of a secured credit card
Your cash deposit is held by a bank or financial institution which allows you to get a secured credit card. The things to note about the workings of a secured credit card are as follows:
- Credit limit. Most secured credit card providers offer a credit limit that is equal to your security deposit.
- Security. The security is held in an account by the credit card provider, 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.
- Cash transactions. Using a secured credit card to withdraw money from an ATM will incur interest charges right away.
- 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.
US secured credit card providers
|Provider||Description||Fee or charge|
|Capital One Secured MasterCard||purchase interest rate cash advance interest rate annual fee cash advance fee||prime rate + 22.9%prime rate +24.9%$29$10 or 3% of transaction|
|First Progress Platinum Elite Secured MasterCard||purchase interest rate cash advance interest rate annual fee cash advance fee||prime rate + 16.74%prime rate + 21.74%$29$10 or 3% of transaction|
|First Progress Platinum Prestige Secured MasterCard||purchase interest rate cash advance interest rate annual fee cash advance fee||prime rate + 8.74%prime rate + 15.74%$44$10 or 3% of transaction|
|USAA Secured Platinum Card||interest rate annual fee||prime rate + 9.90%$35|
|Citi Secured MasterCard||interest rate annual fee||prime rate +14.99%$29|
|Wells Fargo Secured Visa Card||purchase interest rate cash advance interest rate annual fee|
cash advance fee
|prime rate +18.99%prime rate + 23.99%$25|
$10 or 5% of transaction
|Bank of America Secured Credit Card||purchase interest rate cash advance interest rate annual fee balance transfer fee|
cash advance fee
|prime rate + 20.24%prime rate + 24.99%$393% of transfer amount|
$10 or 3% of transaction
Penalty rates and late payment fees
Fees apply if you don’t make your credit card repayments by the due date. Late payment fees can be as high as $35, so be sure to pay by the due date on the statement. You can try changing your repayment frequency or set up an automatic direct debit to ensure you pay your account on time.
Can I earn interest on my deposited cash?
You do not earn interest on your secured credit card deposit. This is the money you need to put forward to apply for a secured credit card. Be sure to note the length of time the card provider will hold your deposit. Some periods can be as long as two years.
Applying for a secured credit card
Secured credit cards are not available in Australia at the time of writing. They are common overseas, especially in the United States.
- You can apply for a secured credit card online.
- You can apply for a secured credit card if you have a bad credit history or no credit history.
- You must be over the age of 18.
- You must pay a security deposit to get approved for a secured credit card.
- You may not apply for a secured credit card if you’re currently bankrupt.
- You must show that you have enough money to cover your expenses.
Pros and cons of using a secured credit card
- Credit history. Secured credit card providers send reports to credit agencies about your repayment history. This can help improve your credit history.
- Bad credit alternative. You can apply for a secured credit card if you have a bad credit history.
- Interest free days. You can get interest free days on your credit card purchases if you pay your balance in full by the statement due date.
- Limited credit. Your credit limit is often limited to the amount of money you deposit.
- Interest. Paying fees and interest on money you’ve deposited to the bank is unnecessary. Be sure to only spend what you can afford to repay within the interest free period.
- Annual fee. These cards usually come with an annual fee, so it’s important to make sure the extra features offered with a secured credit card are enough to justify the annual fee.
- Risk. You will lose your deposit if you fail to make the repayments on your balance amounts
Secured credit cards are a great way to help improve your credit history. Compare secured credit cards so you can find the product with the right mix of features for you.
Frequently asked questions
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.
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.
What are the alternatives to a secured credit card if I have negative listing on my credit file.
Secured credit cards are not an option in Australia. Credit cards are unsecured lines of credit. If you have a negative listing on your credit file you won’t be able to apply for a credit card. Consider these options instead of a secured credit card.