When you’re just starting out building your credit, there aren’t a lot of great options out there. Most normal credit cards require at least a couple years of credit history. And flashy, heavy hitting rewards credit cards require high incomes, high credit scores, and charge lofty annual fees - not exactly ideal for most college students.
Student credit cards are a slightly more realistic option. They’re normal credit cards that are easier to get approved for, but getting approved for a student credit card still isn’t a sure thing. Plus, they can come with higher interest rates and still have all the same confusing terms, conditions, and fees. You can try and get a parent or guardian with good credit to cosign on a card for you, but this isn’t always easy, and the pitfalls of a credit card remain.
Secured credit cards are an option that many new credit builders resort to. By putting down a deposit, you guarantee that the lender will have money to cover your expenses if you don’t pay them back. These cards typically come with many of the same pitfalls as a normal credit card - but they’re actually even worse. Let’s take a closer look at why you should avoid secured credit cards at all costs.
What is a secured credit card?
A secured credit card is designed specifically for people with no credit or people who are trying to rebuild their credit. If you’re just starting out building your credit and don’t yet have a credit profile or a credit score, lenders don’t know if they should trust you with their money. With a secured credit card, you put down a deposit that serves as you credit limit. That way, if you don’t pay your bill, the lender can take your deposit without losing any money. They essentially hold your hard-earned money hostage.
Some companies allow you to convert a secured credit card into a regular credit card after six months or a year of on-time payments. Others don’t give you that option, forcing you to close the account to get your money back. This can hurt your credit score as you’re trying to build it.
Fizz, on the other hand, isn’t a secured credit card but also doesn’t check your credit before giving you a card. With Fizz, you can build credit without having your money held hostage.
What’s wrong with secured credit cards?
Secured credit cards have a number or drawbacks. Like we talked about above, secured credit cards hold on to your money and often times won’t give it back until you close the card. But did you know that secured credit cards don’t have as full and robust of an effect on your credit as unsecured lines of credit?
This can come as a surprise. It’s still a credit card, and if anything you have to sacrifice more to keep it open. So why wouldn’t it have a full credit-building effect? Well, it comes down to the difference between your credit score and your credit profile. Your credit score is a number that represents how responsible you are with money. But your credit profile is where your credit score is derived from, and your credit profile has more detailed information about what kinds of loans you have and what your payment history is like.
When a lender pulls your credit to determine if they’re willing to lend you money (to buy a house or buy a car, for example), they’re going to take a look at your credit profile as a whole. Seeing a secured line of credit doesn’t signal financial responsibility the way that an unsecured line of credit does. Would you rather lend your money to someone who can only get a line of credit secured with a deposit? Or would you prefer someone who can manage an unsecured line of credit? An unsecured line of credit is what you get with normal credit cards - and with a Fizz card.
The bottom line
In the past, secured credit cards were the only option for college students who didn’t have cosigners or who weren’t able to get student credit cards. Too many students were stuck with secured cards that didn’t do enough to build their credit and that kept their money hostage for months or even years.
Fizz is changing all that. With Fizz, you don’t need to have credit in order to build credit. We give you an unsecured line of credit, and by connecting to your existing bank account, we keep you from overspending. You get a full credit building effect without fees, interest, or security deposits. It’s the best way to build credit while you’re in college - hands down. If you haven’t gotten a Fizz card yet, why wait? Download the Fizz app now and start building credit the right way.
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.