What Is a Secured Credit Card?

A secured credit card is a credit card that is secured by a deposit. You put down a refundable security deposit and the deposit becomes your credit limit. The security deposit reduces the credit card company’s risk, so these cards are available to people with no credit or bad credit. 

Most secured card issuers report your payment record to all three major credit bureaus. That helps you build credit.

A secured credit card will not say “secured” anywhere on the card. It is not a prepaid card or a debit card. It looks and works just like any other credit card. 

A secured Visa card or Mastercard will be accepted anywhere that takes a regular Visa or Mastercard. You can get a cash advance from a secured card.

How Do Secured Credit Cards Work?

26 million Americans have no credit history at all. Another 19 million don’t have enough data in their credit file to generate a score. 68 million don’t qualify for most conventional loans or credit cards because their credit scores are too low.

Secured credit cards allow these Americans to get a credit card and enjoy the convenience, safety, and security that credit cards offer. They also offer an effective way to put a revolving credit line on your history and build a credit record.

Lenders use your credit score to predict your risk of default. If you have no score or your score is low, you have a high default risk. Secured credit cards control risk by requiring a deposit from the cardholder. If you don’t pay, the issuer keeps your deposit.

Aside from the security deposit, a secured card is just like any other credit card. You will usually have a low credit limit (unless you put down a large deposit), but other than that you can do anything with your secured card that you could do with an unsecured card.

Many secured cards will let you upgrade to an unsecured card if you establish a good payment record. (Also check out our Debit Cards That Build Credit article for other options.)

Applying for a secured credit card is generally easy. Requirements are low. Some issuers may only make a soft pull on your credit report, which will not affect your credit score. Some may not do a credit check.

Secured credit cards are available from national banks like Citi or Bank of America, national credit unions like Navy Federal, and many local banks and credit unions. If you have a savings account with a local bank or credit union, ask them about a secured credit card.

If you need business credit you can get a secured business credit card.

As with any credit card, you will want to check for annual fees and the annual percentage rate (APR). If you pay off your balance in full each month, you will not pay interest at all. You may not always be able to do that, so a lower interest rate is a good thing.

Cards with the lowest approval standards will often have higher annual fees and APRs. If you can qualify for a no-fee card with a lower APR, this will be a better choice.

Some secured credit cards offer limited cash back or other rewards. Remember that your credit limit will be low. You probably won’t be spending enough on your card to gain much from rewards, so they shouldn’t be a major factor in your choice. Focus on the fee and the APR! Also see our related article: How Long Does It Take to Build Credit With a Secured Credit Card?.

What’s The Difference Between a Secured Credit Card and a Regular Credit Card?

The biggest difference between a secured credit card and a traditional credit card is that a secured credit card requires a security deposit. Many cards have a minimum deposit as low as $200 and some allow you to pay your deposit in installments. (What Is a Secured Credit Card?)

Your security deposit becomes your credit limit: you can’t charge more on your card than you have on deposit. 

That means secured cards usually have low credit limits. The average American credit card limit is over $30,000. Secured credit card limits are usually between $200 and $2500. (Also see our list of Best Credit Card for Contractors.)

A low credit limit means you’ll have to pay close attention to credit utilization. This is the percentage of your credit limit that you actually use. If your credit limit is $1000 and your balance is $300, your credit utilization is 30%.

Low credit utilization helps your credit score. Keeping credit utilization under 30% is good, under 10% is better. With a low credit limit, you will need to control spending carefully to stay under these percentages.

Card issuers offer rewards and specialized functions to attract customers with good credit. Secured cards are designed for easy qualification and credit building. Don’t expect high rewards, balance transfers, or a promotional APR.

Who Should Consider a Secured Credit Card?

Secured credit cards are designed to serve two main markets:

• People with no credit. If you don’t have a credit file or your credit file is too thin to generate a score, a secured credit card will add a revolving credit tradeline to your credit report and give you an opportunity to build a positive payment history.
• People with bad credit. Secured credit cards are available to people with bad credit. You may even qualify with a recent bankruptcy or multiple collection accounts. A secured card gives you the chance to balance out those negative records with a positive entry.

Secured cards provide these markets with two main benefits:

• Card use. Using a credit card is convenient, lets you avoid carrying cash, and provides fraud protection.
• Credit building. Using a secured card wisely can help you establish or build credit.

If you’re in one of those categories and need those functions, consider a secured credit card.

How Does a Secured Credit Card Help in Building Credit?

A secured credit card adds a revolving credit line to your credit report. This can help you build good credit history in several ways.

• Payment history. If you make every payment on time you will build a posi