What is a secured credit card?

A practical card option for people who need to build their credit

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The catch-22 of credit cards is that it can be difficult to get approved for one without a credit history, but building credit history often requires having a credit card.

Secured credit cards can be a good option for those who are looking to establish or rebuild their credit. By using a secured credit card responsibly, you can gradually improve your credit score, making it easier to qualify for traditional unsecured credit cards in the future.

Key insights

  • Secured credit cards are easier to qualify for, making them good options for people with poor or no credit history.
  • These cards are secured by using your own cash as collateral. Many lenders will have their own limits on exactly how much you can deposit.
  • If used prudently, secured cards help you rebuild or establish your credit and eventually switch to an unsecured card.

How secured credit cards work

Secured credit cards are a type of credit card that requires the cardholder to put down a cash deposit as collateral. The credit limit for the card is typically equal to the amount of the deposit — so that if the borrower is unable to pay off the balance, the issuer can take the money straight from the account.

“For those with a limited credit history or a low credit score, secured credit cards offer a unique way to build credit,” said Jake Hill, founder of DebtHammer, which provides resources for people struggling with debt. “They are relatively easy to get approved for but do require you to deposit your own funds onto the card.”

Because there’s collateral, card issuers are often willing to offer secured credit cards to those who might not qualify for a traditional (unsecured) credit card.

» MORE: How to fix your credit

Secured vs. unsecured credit cards
In contrast to secured credit cards, unsecured credit cards do not require any deposit on your part. The credit limit set by the lender is based on a variety of factors, including your income and credit score.
The best unsecured cards will require very good to excellent credit , making them inaccessible to some consumers.
Secured credit cards vs. prepaid cards
While these two cards seem quite similar, there is a distinct difference between the two:
  • A prepaid card is a card onto which you load your own money, and then spend it as you make purchases. Because no credit is extended during the use of a prepaid card, it does not build your credit score.
  • A secured credit card is still considered a loan from a lender — though it is backed by your cash as collateral. A secured card does help to build your credit score.

Pros and cons of secured credit cards

Secured credit cards are a great option if you’re looking to rebuild or establish your credit, but they do come with some cons.


  • Build credit: Using a secured card will help you build credit. Also, many lenders will review your account after a period to see if you qualify for an unsecured card.
  • Easier to qualify for: Most lenders have minimal requirements for applying for secured cards, making them ideal for people with poor or no credit.
  • Less risk of burying yourself in unmanageable debt: Because you are required to place your own cash as collateral, there is less risk of overspending.


  • High fees and interest rates: “Consumers should be aware that some secured credit cards can have higher interest rates than traditional credit cards,” said Hill.
  • Low limits: The limits set by most lenders for secured cards are much smaller than with unsecured cards. This means secured cards are not ideal for large purchases.
  • Deposit required upfront: Even though the money used to make a purchase is not yours, you are still required to provide the cash before the purchase is made.

How to get a secured credit card

Applying for a secured credit card is nearly identical to the process of applying for an unsecured card:

  1. Research and compare secured credit cards. Look for secured credit cards offered by reputable issuers, and compare the features, fees and interest rates of different cards to find one that suits your needs. To start, see our ConsumerAffairs picks for best secured credit cards.
  2. Apply for the card. Once you've chosen a secured credit card, fill out an application either online or in person. You'll need to provide personal information such as your name, address and Social Security number, as well as the amount of your deposit.
  3. Make the deposit. After you're approved for the card, you'll need to make a deposit with the issuer to secure your credit limit. This deposit may range from a few hundred dollars to several thousand dollars, depending on the card and the issuer.

Note that during the application process the lender might assess your credit history and score — known as a hard inquiry. Not all lenders will do a hard credit check for a secured card, but some may. A hard inquiry can further decrease your credit score by a few points, which is something to keep in mind before applying.

» MORE: How to check your credit score

Best practices for using a secured credit card

When using a secured credit card, there are some best practices to keep in mind to help you achieve your goals, whether that be rebuilding your credit or establishing it from scratch.

  • Minimize your utilization. Your goal when using any type of credit card should be to keep your utilization low. Credit utilization is one of the five main factors used to calculate your credit score, so it’s best if you can keep yours below 30% — even better if it’s below 10%.
  • Pay on time and in full. Your payment history is the biggest factor influencing your credit score, accounting for 35% to 41%, depending on the scoring model. Make all payments on time and pay off the full balance each month to ensure your score moves in the right direction.

Should you get a secured credit card?

If you are looking to build or establish credit, a secured card could be an excellent option. Using it limits your risk of accumulating large amounts of debt while still proving to lenders that you’re trustworthy enough to be considered for larger purchases. If you are prudent in your use of the secured card, the lender may even consider you for an upgrade to an unsecured card.

However, if you already have good to excellent credit, a secured card would not be of much use to you. If you simply want to spend no more than a certain amount that you’ve already set aside, a prepaid card may be better suited for your purposes.

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    Do secured cards hurt your credit?

    Secured cards themselves do not hurt your credit, but the application process might. During the application process, the lender may do a hard inquiry into your credit history, which will negatively impact your score by a few points.

    Do you get your deposit back on a secured credit card?

    Assuming you have paid off all balances due, the lender will return your deposit to you when you cancel the card. The same is true if you change from a secured card to an unsecured card.

    How do you change from a secured to an unsecured credit card?

    If you use the card prudently, your lender may automatically offer to change you from a secured card to an unsecured card. If some time has passed and you’ve been responsible with your card, you can also ask your lender directly about upgrading.

    What is a partially secured credit card?

    A partially secured card is a secured credit card where the limit is higher than the amount you put up as collateral. These are for people who have some credit, but not a high enough score or enough history for a fully unsecured card.

    Bottom line

    Secured credit cards can be a valuable tool if you are looking to establish or rebuild your credit. However, it's important to carefully compare different secured credit card options, particularly their fees and interest rates, to determine which one is the right choice for you.

    With responsible use, a secured credit card can be an effective way to build a positive credit history and eventually qualify for a traditional unsecured credit card.

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