What Is a Secured Credit Card?
In plain English
A secured credit card is backed by a refundable cash deposit that typically becomes your credit limit. It is designed for people with no credit history or poor credit, since the deposit reduces the lender's risk. When used responsibly, it reports to credit bureaus and helps build a positive credit history over time.
How Is a Secured Credit Card Different From a Regular Credit Card?
The key difference is the required security deposit, usually equal to your credit limit, which the issuer holds as collateral. Otherwise, secured cards function identically to unsecured cards: you make purchases, receive a monthly statement, and must make at least a minimum payment. Interest charges and fees apply the same way. Your deposit is returned when you close or graduate the account in good standing.
Who Should Use a Secured Credit Card?
Secured cards are ideal for people with no credit history — such as young adults, recent immigrants, or those who have avoided credit — and for people recovering from past credit problems like bankruptcy. They provide a low-risk entry point to the credit system. After demonstrating responsible use for six to twelve months, many issuers will upgrade you to an unsecured card.
What Should You Look for in a Secured Credit Card?
Choose a card that reports to all three major credit bureaus, as this is essential for building your credit file. Look for low or no annual fees, a reasonable deposit requirement, and a path to upgrading to an unsecured card. Avoid cards with high monthly maintenance fees, as these can consume a disproportionate share of a low credit limit.
Frequently asked questions
Do you get your deposit back from a secured credit card?
Yes, in most cases. When you close the account in good standing or upgrade to an unsecured card, the issuer refunds your deposit, typically within a few weeks. It's worth noting that any outstanding balance should be paid off before closing to receive the full deposit.
Can a secured credit card hurt your credit?
Yes, if misused. Missed payments and maxing out the card will damage your credit just like with any card. The purpose of a secured card is to demonstrate responsible behavior, so consistent on-time payments and low utilization are essential to improving your score.
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Related terms
Credit Card
A credit card is a revolving line of credit that lets you borrow money up to a set limit for purchases, then repay it over time. Used responsibly, it builds credit and may earn rewards.
Credit Score
A credit score is a three-digit number that summarizes your creditworthiness based on your credit history. Lenders use it to decide whether to approve loans and at what interest rate.
Credit Builder Loan
A credit builder loan is a small loan designed to help people establish or improve credit by making regular payments that are reported to credit bureaus.
Credit Bureau
A credit bureau is a company that collects and maintains consumer credit information. The three major bureaus — Equifax, Experian, and TransUnion — compile your credit reports used by lenders.
Authorized User
An authorized user is someone added to another person's credit card account who can use the card but is not responsible for the debt. It can be a powerful way to build credit.
Credit Utilization
Credit utilization is the percentage of your available revolving credit that you are currently using. It is one of the most influential factors in your credit score.