Secured credit cards – what are your options?

Although they are available in the United States and other countries, secured credit cards are not currently offered in Australia. But you may still be interested in understanding how they work and some alternative ways you could build your credit. You might also like to compare available credit cards with Canstar.

What is a secured credit card?

Secured credit cards require you to provide a security deposit, which is used as collateral for the card. So if you default on your credit card payments, the provider can keep your deposit. The security deposit also typically influences the credit limit you are offered.

Some providers offer refundable deposits. So if you regularly make your payments on time, you may be able to earn back your deposit as a statement credit.

Who are secured credit cards designed for?

Secured credit cards are often taken out by people who are new to credit or want to build their credit history. Because of the required security deposit, secured credit cards may be easier to qualify for compared with traditional unsecured credit cards.

Also, it may be possible to improve your credit score with a secured credit card if you use the card responsibly and make payments on time, as the provider will typically report this activity to the credit bureaus.

Are secured credit cards offered in Australia?

Secured credit cards are not currently offered in Australia, but they are offered in the United States and other parts of the world.

In Australia, all credit cards are unsecured. This means that you do not need to provide a security deposit, but if you fail to make your credit card payments, you may be charged late fees as well as ongoing interest. If you fail to make payments over a period of time, the Australian Banking Association warns that your bank may cancel your credit card.

Your credit card provider may also send you a default notice. If you are unable to meet the conditions of this notice, it may lodge a statement of claim against you to recover the amount you owe. Late credit card payments can also have a negative affect on your credit score.

What are some alternatives to a secured credit card?

As secured credit cards are not offered in Australia, you might want to consider whether a regular unsecured credit card is the right option for you. Carefully weigh up the pros and cons of having a credit card.

If it’s your first time taking out a credit card, you might want to consider a no-frills card with a low or no-interest rate and a low annual fee.

You could also explore other products like secured personal loans.

If you have a poor credit score, carefully consider whether applying for a credit product is a good idea for you. If you decide that taking out a credit or loan product is not right for your circumstances, it could be worth considering your debit card options instead.

What are some alternative ways to build your credit score?

Let’s look at some other ways you could build or improve your credit score.

Firstly, it’s important to check your credit score so you know where you currently stand as a borrower. You can check your credit score for free with Canstar.

If you are new to credit products and are looking to build your credit history, you could consider:

• putting utility accounts such as electricity, gas and water bills into your name and ensuring you pay these bills on time
• getting a postpaid phone plan in your name and paying this on time.

If you’re credit score is not as high as you’d like and you want to improve it, consider the following strategies:

• Ensure you pay your bills and any existing loans and debts on time. Consider setting up direct debits if you can to help with this.
• Thinking carefully before applying for new credit or loan products. Each time you apply for a new product it will appear on your credit report. If you make multiple applications in a short amount of time, this may have a negative impact on your score.
• Getting a copy of your credit report (this is a record of your credit history) from a credit reporting body. In Australia, the main bodies are Equifax, Experian and illion.

Read more of our tips on how to improve your credit score.

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