A secured credit card is a type of credit card designed to help people with bad credit, no credit, or limited credit history. It works like a regular credit card, but with one big difference: you have to make a refundable security deposit to open the account. This deposit acts as collateral for the lender and helps reduce the risk for the credit card issuer.
If you’re trying to rebuild credit or build credit for the first time, a secured credit card can be a smart first step. These cards are often easier to qualify for than traditional credit cards, and they give you a chance to show responsible use while keeping your spending in check.
When you apply for a secured credit card, you’ll need to provide a minimum security deposit. This amount usually becomes your credit limit. For example, if you deposit $300, your available credit will be $300.
Once the account is open, you can use the card just like any other credit card. You make purchases, pay a monthly bill, and possibly earn small rewards like cash back depending on the card. Each month, you must make at least the minimum payment by the due date. On-time payments are important because they are reported to the major credit bureaus, and they affect your credit score.
A secured credit card is ideal for:
Using a secured credit card responsibly can lead to improved credit over time. Many people who start with a secured card move on to an unsecured credit card later.
Read more from Credit.org about How to Build Your Credit From Nothing.
Most secured credit cards require a refundable security deposit ranging from $200 to $500, though some go higher. A few cards offer lower or flexible deposit options based on your credit profile. In some cases, you may be able to increase your credit line over time without making another deposit.
Keep in mind that while this deposit is refundable, you won’t get it back right away. You’ll typically receive your money back when you close your account in good standing, or when you are upgraded to an unsecured credit card by the same issuer.
The main goal of a secured card is to build credit. To do that, the credit card issuer must report your credit activity to the three major credit bureaus: Equifax, Experian, and TransUnion.
To boost your credit score over time, be sure to:
Following these steps helps you develop a strong payment history, which is one of the most important factors in your FICO score.
Learn more from our article Comparing Credit Scores: FICO Score and Vantage Score. Learn about credit reporting from USA.gov.
Your credit limit on a secured card usually equals your deposit, but some issuers offer higher limits as you prove your responsible use. It’s important not to max out your card. Using more than 30% of your available credit can hurt your score.
For example, if your credit limit is $300, try to keep your balance below $100. This shows lenders that you’re not relying too heavily on credit, which makes you appear more creditworthy.
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Secured credit cards typically have higher interest rates than unsecured cards. This is because they’re often issued to people with poor or limited credit history, which increases the lender’s risk. Be sure to check the card’s annual percentage rate (APR) before applying.
In addition to interest charges, you may encounter other fees such as:
To avoid paying interest, try to pay off your balance in full each month. This keeps your costs down and improves your overall credit health.
Some secured credit cards offer perks like cash back or points. These rewards are less generous than what you’ll find on traditional cards, but they can still be helpful.
Here’s what you might expect:
While rewards are a nice bonus, don’t let them distract you from the main purpose of the card: improving your credit score through on-time payments and responsible use.
If you’ve had a history of missed payments, charge-offs, or bad credit, a secured credit card gives you a chance to rebuild credit. As long as the issuer reports your activity to the credit bureaus, you can start making progress in as little as three to six months.
To rebuild successfully:
Over time, your score may improve enough to qualify for a better credit card or even a car or home loan with favorable interest rates.
Learn more from Credit.org's What is a Good Credit Score?
As your credit score improves, your card issuer may offer you an upgrade to an unsecured credit card. This usually means:
Some card issuers automatically review your account after 6 to 12 months. Others may require you to request an upgrade.
Tip: Keep the account open even after upgrading, especially if it’s your oldest credit card account. This can help your credit history and improve your overall score.
Not all secured cards are the same. Here are some tips when shopping for one:
Visit trusted review sites, or consider speaking with a nonprofit credit counselor. Learn about spotting scammers and fake banks from the FDIC.
Your security deposit is held by the lender as a safeguard, not as payment toward your purchases. It stays in a special account and is fully refundable, provided you:
You may also get your deposit back earlier if your lender upgrades you to an unsecured card.
It’s important to understand how secured credit cards stack up against other types of cards and credit-building tools.
If your goal is to build or rebuild credit, a secured credit card is usually the most effective option.
Learn more from the GA Attorney General's Consumer Protection Division.
Improving your credit score takes time, especially if you’re starting with no credit or trying to recover from poor credit. With consistent, on-time payments and smart usage, many secured credit card users see results in six to twelve months.
Key factors that affect your score include:
The most immediate impact comes from building a solid payment history and keeping your balance low.
Learn more from our article What is a Credit Score and How is it Calculated?
To make the most of your secured credit card and avoid common pitfalls:
Staying on track with these habits will not only help you qualify for better credit options but also improve your overall financial wellness.
Your FICO score is one of the most widely used credit scores by lenders. It ranges from 300 to 850 and is based on data from your credit reports. Secured credit cards can positively impact your FICO score by helping you:
Most secured credit cards report to all three major credit bureaus, ensuring that your responsible activity is reflected in your credit file.
Once your credit improves, you might wonder whether to close your secured card. If you’ve graduated to an unsecured card, it’s usually best to keep your secured card open, especially if it’s your oldest account.
Closing the account might reduce the average age of your credit history or lower your total available credit, both of which can impact your score. If the card has no annual fee and you’re managing it well, keeping it open can continue to support your credit profile.
A secured credit card is a practical tool for building or rebuilding credit. It offers access to credit with fewer barriers and gives you a way to prove your creditworthiness over time.
If you’re committed to improving your financial future and willing to follow good habits, a secured card could be your first step toward better credit.
You can learn more about secured credit cards, debt management, and rebuilding credit at Credit.org’s financial education hub.
If you need help building a better credit history, call us today.
