Secured Credit Cards
A practical path to building or rebuilding your credit with the security of a deposit.
What is a Secured Credit Card?
A secured credit card works just like a regular credit card, with one key difference: it requires a security deposit that typically becomes your credit limit.
This deposit reduces the risk for the card issuer, making secured cards accessible to people with limited or damaged credit history. As you use the card responsibly and make on-time payments, the issuer reports your activity to the major credit bureaus, helping you build a positive credit history.
Many secured cards offer a path to graduate to an unsecured card after demonstrating responsible use over time, and your security deposit is typically refundable when you close the account in good standing or upgrade to an unsecured card.
Benefits of Secured Credit Cards
- Accessible to people with limited or poor credit
- Reports to all three major credit bureaus
- Functions like a regular credit card
- Refundable security deposit
- Potential to upgrade to an unsecured card
- Some offer rewards and benefits
How Secured Credit Cards Work
Apply for a secured credit card with a bank or credit card issuer. Most have less stringent approval requirements than regular cards.
Provide a security deposit, typically $200-$2,000, which usually becomes your credit limit. This deposit is held as collateral.
Use the card for small purchases and pay your balance in full and on time each month. Your activity is reported to credit bureaus.
After 6-12 months of responsible use, you may qualify to upgrade to an unsecured card and get your deposit back.
Secured vs. Unsecured Credit Cards
| Feature | Secured Credit Cards | Unsecured Credit Cards |
|---|---|---|
| Security Deposit | Required (typically $200-$2,000) | Not required |
| Credit Limit | Usually equal to your deposit | Based on creditworthiness |
| Approval Odds | Higher for those with limited/poor credit | Depends on credit score and history |
| Annual Fees | Common, but not universal | Varies by card |
| Interest Rates | Typically higher | Varies based on creditworthiness |
| Rewards | Limited, but some offer cash back | More common and often more generous |
| Credit Building | Excellent tool for building credit | Good for maintaining and building credit |
Tips for Using Secured Credit Cards Effectively
Try to keep your credit utilization (the percentage of your credit limit that you're using) below 30%. For example, if your limit is $500, aim to keep your balance under $150.
Always pay your balance in full and by the due date. This helps you avoid interest charges and late fees while building a positive payment history, which is the most important factor in your credit score.
Check your credit reports regularly to ensure your payments are being reported correctly. Many secured card issuers offer free credit score monitoring to help you track your progress.
Use your secured card for small, regular expenses like gas or groceries. This establishes a pattern of responsible use without the temptation to overspend on larger purchases.
Cash advances typically come with high fees and interest rates that start accruing immediately. Avoid using this feature of your secured card to keep costs down.
Understand all fees associated with your card, including annual fees, late payment fees, and foreign transaction fees. Choose a card with minimal fees and favorable terms.
What to Look for in a Secured Credit Card
Desirable Features
- Reports to all three major credit bureaus
- Low or no annual fee
- Path to upgrade to an unsecured card
- Ability to increase credit limit
- Interest on your security deposit
- Rewards or cash back (if available)
Features to Avoid
- High annual fees
- Monthly maintenance fees
- Application or processing fees
- Cards that don't report to all three credit bureaus
- No clear path to an unsecured card
- Extremely high interest rates (even for a secured card)
Frequently Asked Questions
Most secured credit cards require a minimum deposit of $200-$300, though some may start as low as $50 or $100. Your deposit typically becomes your credit limit, so if you want a higher limit, you'll need to provide a larger deposit. Some cards allow deposits up to $2,000-$5,000.
Yes, your security deposit is refundable when you close your account in good standing (with no outstanding balance) or when you upgrade to an unsecured card. Some issuers may review your account periodically and refund your deposit while keeping your account open if you've demonstrated responsible use.
Most people begin to see improvements in their credit score after 3-6 months of responsible secured card use. However, significant improvements may take 12-18 months. The key is consistent, on-time payments and keeping your credit utilization low.
Yes, it's possible to be denied for a secured credit card, though approval rates are generally higher than for unsecured cards. Common reasons for denial include recent bankruptcy, insufficient income to make payments, or a history of severe delinquencies. If you're denied, ask the issuer about their reconsideration process or look for cards specifically designed for credit rebuilding.
Some secured credit cards do offer rewards programs, though they're typically not as generous as those on premium unsecured cards. You might find secured cards offering 1-2% cash back on purchases or rewards in specific categories like gas or groceries. If rewards are important to you, be sure to compare options, but remember that building credit should be your primary goal.
Yes, for building credit, a secured credit card is significantly better than a prepaid card. Prepaid cards work more like debit cards—you load money onto them and spend what you've loaded. They don't extend credit and don't report to credit bureaus, so they don't help build credit. Secured credit cards, on the other hand, are true credit cards that report your payment history to credit bureaus, helping you establish or rebuild your credit history.