A secured credit card is a type of credit card backed by a refundable security deposit, which typically becomes your credit limit. For example, if you deposit $300, your credit limit will be $300.
This deposit protects the card issuer in case you default, making it easier for people with low or no credit scores to get approved.
How Does a Secured Credit Card Work?
- Apply for the card: Choose a secured card and apply like you would with any other credit card.
- Make a deposit: You’ll need to provide a security deposit—usually between $200 and $1,000.
- Use it responsibly: Make small purchases and pay your balance in full each month.
- Build your credit: Payments are reported to the major credit bureaus (Experian, Equifax, TransUnion).
- Upgrade or refund: After 6–12 months of responsible use, many issuers may let you upgrade to an unsecured card and refund your deposit.
Benefits of a Secured Credit Card
- Build or Rebuild Credit: Ideal for credit newbies or people recovering from financial trouble.
- Reports to Credit Bureaus: Helps you establish a positive payment history.
- Easier Approval: More accessible than unsecured cards.
- Can Transition to Unsecured: Some cards automatically graduate after responsible use.
- Refundable Deposit: You get your deposit back when you upgrade or close the account in good standing.
Drawbacks to Consider
- Requires Upfront Deposit: You need cash upfront, which might be a barrier for some.
- Low Credit Limit: Often starts with a small limit (equal to your deposit).
- High APR: Interest rates can be higher than traditional cards.
- Fees: Some cards charge annual or setup fees.
How to Choose the Best Secured Credit Card
Here are factors to consider:
| Criteria | Why It Matters |
|---|---|
| No or Low Annual Fees | Keeps the card affordable |
| Reports to All 3 Credit Bureaus | Ensures your credit gets built |
| Upgrade Path | Can you move to an unsecured card? |
| Reasonable Deposit Requirement | Some cards allow deposits as low as $200 |
| Grace Period | Avoid interest by paying balances on time |
| Low APR | Important in case you carry a balance |
Best Practices for Using a Secured Credit Card
- Use the card regularly but lightly (keep utilization under 30%)
- Pay your balance in full each month
- Set up automatic payments to avoid missed deadlines
- Monitor your credit score monthly
- Ask for a credit limit increase (some issuers allow this without extra deposit)
Who Should Get a Secured Credit Card?
A secured credit card is best for:
- Students or young adults with no credit history
- Individuals who have declared bankruptcy
- Those looking to rebuild credit after missed payments
- Immigrants or recent residents in the U.S. who are new to the credit system
When to Switch to an Unsecured Credit Card?
You may consider switching when:
- Your credit score improves (e.g., reaches 650+)
- You’ve used the secured card responsibly for 6–12 months
- You receive offers for unsecured cards with better rewards or terms
(FAQs)
Q1: Is a secured credit card safe?
Yes. It works like a regular credit card, and your deposit is refundable if you pay your balance on time.
Q2: How much should I deposit?
Most secured cards require $200–$500 minimum deposit, but some allow up to $2,000 or more for a higher credit limit.
Q3: Will it help improve my credit score?
Yes. As long as the issuer reports to the major credit bureaus, on-time payments will help improve your credit score.
Q4: Can I get denied for a secured credit card?
Yes. You can be denied if you have a very poor credit history, recent bankruptcies, or insufficient income.
Q5: Do secured credit cards offer rewards?
Some do. A few secured cards now offer cash back or points, but these are less common than with unsecured cards.
Q6: What happens if I don’t pay my balance?
The issuer can keep your deposit to cover the balance and may report the delinquency to credit bureaus, harming your credit score.
Q7: Is the deposit used for monthly payments?
No. The deposit is not used to pay your balance. You still need to pay your bill like any regular credit card.
Q8: Can I increase my credit limit?
Some cards let you increase your limit by adding more to your deposit or through automatic reviews.