About secured credit cards

By   |   Verified by David Boyd   |   Published 22nd July 2021

You may have heard about secured credit cards. They are, in some ways, suited to people with bad credit who can use them to rebuild a damaged credit report.

But what exactly are they, how do they work, and are they available in Australia? Read on to find out.

What is a secured credit card?

A secured credit card is a specific type of credit card that requires a deposit and is used to help build your credit history. The size of your deposit determines the credit limit you will have.

Secured credit cards require you to make regular repayments to avoid interest on unpaid balances. If you use your secured credit card to withdraw money from an ATM that will incur instant interest charges, similar to a cash advance.

Secured vs regular credit cards

Unlike a regular credit card, a secured credit card requires an upfront security deposit. The deposit is held in the account without earning any interest.

Credit limits also function differently compared to a normal credit card as it is determined by the size of the deposit. Fewer interest free days are available on a secured credit card.

Secured credit card issuers report your repayments to credit reporting agencies. This is one of their main attractions since it can help establish or improve your credit score.

Who are secured credit cards for?

A secured credit card is best suited to a cardholder with bad credit, particularly those looking to use a card to rebuild your credit history. They are also popular with ex-bankrupts who use them to rebuild their credit.

Are secured credit cards available in Australia?

No, secured credit cards are not currently available in Australia due to local regulation.

They remain a popular option in the US and other countries around the world.

Alternatives

Although they are not available in Australia, there are some alternatives you can consider.

  • Prepaid credit cards. While being an option for people with bad credit, they will not help establish, rebuild, or improve your credit score.
  • Buy Now Pay Later services. Options such as Afterpay might be an option as they do not perform a credit check when accessing your application. It’s worth noting that Afterpay doesn't report your repayment history and will not help improve your credit.

How can I improve my credit score?

While it is possible to improve your credit score, it is a process that takes time. Check out our complete guide on what you can do to improve your credit score.