Secured Credit Cards

Secured credit is credit given by a lender in exchange for a valuable asset given by the borrower as collateral. The collateral “secures” the debt. This arrangement allows the creditor to take possession of the asset as payment if the borrower should default on the loan. That enables the creditor to recoup some or all of the loan amount still owed. Some examples of collateral used to secure credit agreements include real estate, bank accounts, vehicles, investments, money, and precious metals.

When you apply for secured credit, the lender will request the collateral to "back" the loan. A lender will typically want assets that are liquid, meaning they can be easily converted to cash. They should also have roughly the same value as the amount being borrowed. In addition to the types of collateral listed above, other high-value items and collectibles can also be used for collateral, such as works of art or valuable coins.

With secured credit, there’s less risk for the lender since they have collateral. This makes secured credit easier to get, and often with lower interest rates. But depending on the collateral being put up, it will often take longer to approve secured credit accounts. Assessing collateral’s value can be a lengthy and time-consuming process.

Even though the credit is secured by something of value in this case, it’s important to know what’s at stake if you default on a secured credit account. If the foreclosed or repossessed assets you put up as collateral don’t sell for the total amount you owe, the lender can demand payment for the remaining balance. Also, foreclosures and repossessions of collateral will stay on your credit report for up to seven years. This will make it difficult to obtain credit in the future.

Here are some common types of secured credit:

• Mortgages: Your home is the collateral for the loan. If you default on a mortgage, the lender can foreclose and you will lose your home.
• Home equity loan or line of credit: Also known as a “second mortgage,” you use the equity in your home as collateral. Just like a traditional mortgage, you can lose your home if you default.
• Auto loans: Similar to a mortgage, but traditionally, the vehicle being financed is the collateral. Also, if you default, the lender can repossess the vehicle.
• Secured credit cards: The lender will require a security deposit, usually a $200 minimum, against the secured credit card’s credit limit. The deposit is fully refundable when you close the account with a $0 balance. But if you default on the account, the lender can withdraw funds from the security deposit as payment.
• Secured personal loans: The concept is similar to a secured credit card because they’re for borrowers who may not qualify for an unsecured loan. Banks and credit unions offer secured personal loans where borrowers put up savings accounts or CDs as collateral.
• Title loans: A borrower can put up a paid-off vehicle as collateral for this type of secured personal loan. The lender will hold the title for the vehicle for the duration of the loan and can assume ownership of the vehicle if the borrower defaults. Title loans typically have high interest rates because of the vehicle’s depreciation.

Be sure to know the difference between secured and unsecured credit before you apply. While a borrower has to put up collateral to obtain secured credit, unsecured credit is not backed by any collateral.

If you’re late in paying or default on an unsecured credit account, the lender may not immediately seize your assets as repayment, but they could do so after a court battle. The lender may file a lawsuit and get a judgement against you. This could ultimately result in your wages or your bank accounts being garnished. Most credit cards, student loans and personal loans are among the common types of unsecured credit.

The main difference between a secured credit card and an unsecured credit card is that you’re required to place a refundable security deposit to get a secured card. The amount of this deposit typically serves as the credit limit for the secured card, which means you have to pre-pay for purchases with a secured card. You’ll usually have to put down the deposit when you apply, and you’ll get it back when you close your account or upgrade to an unsecured credit card. Unsecured credit cards, on the other hand, give access to a credit line that isn’t “secured” with a deposit.

There is no difference between secured and unsecured credit cards when it comes to building credit. All major secured cards report account information to the major credit bureaus on a monthly basis, just like unsecured cards. In fact, you can’t tell secured and unsecured cards apart on a credit report. So as long as you use either type of card responsibly, your credit score will improve.

Below, you can get a better feel for the differences and similarities between secured and unsecured credit cards by seeing how they compare in several important categories.

Secured vs. Unsecured Credit Cards: Key Differences

Approval Odds of Secured Credit Cards vs Unsecured Credit Cards

Secured credit cards are easier to get approved for than unsecured cards. Because you’re technically pre-funding your credit line with a secured credit card, you can’t spend more than you can afford to repay. The deposit is held in an account by the card issuer, so if you don’t pay your bills, the deposit is used to cover the cost. That’s why secured credit cards are able to offer nearly-guaranteed approval to people with bad credit, while charging very reasonable fees. That being said, secured credit cards are real credit cards – they have interest rates, and you have to pay your monthly bill on time.

In contrast, unsecured credit cards tend to be harder to get, because the card issuer takes on a lot more risk by extending an unsecured credit line. In other words, you can spend more on an unsecured card than you can afford to repay. There are unsecured credit cards for people of all credit levels, but if you have bad credit, you’re likely to pay high non-refundable fees for a very small line of unsecured credit.

Of course, unsecured credit cards have more potential overall and are what you want in your wallet at the end of the day. No secured credit card offers a $400+ initial bonus or a 0% APR for 12+ months. But plenty of unsecured credit cards do. It’s just that you have to prove yourself before becoming eligible for such an offer. And using a secured card is one of the most dependable ways to do that, especially if you’ve made mistakes with credit in the past.

Choosing Between Secured & Unsecured Credit Cards

Overall, the toughest decision between secured and unsecured credit cards comes when you have damaged credit. With bad credit, it’s harder to get approved for an unsecured credit card, and the unsecured options available to people with bad credit are far less attractive.

If you have limited, fair, good or excellent credit, you should be able to start with a solid unsecured card. If you’ve got bad credit and the flexibility to choose either a secured credit card or an unsecured one, always go secured. It will cost you a lot less in the long run and help you build credit just the same. You can check your credit score for free on WalletHub to see where you stand.

There is no minimum credit score needed for a secured card, since secured credit cards are designed for people with bad or limited credit. Some secured credit cards, such as the OpenSky® Secured Visa® Credit Card, won’t even check your credit when you apply.

Notable Secured Cards with No Minimum Credit Score Needed

• Discover it® Secured Credit Card
• OpenSky® Secured Visa® Credit Card
• First Progress Platinum Elite Mastercard® Secured Credit Card
• Applied Bank® Secured Visa® Gold Preferred® Credit Card

It is possible to get denied for a secured credit card, though – even one that doesn’t check your credit. You still need to be at least 18 years old and satisfy the other basic eligibility requirements.

If you’re denied for a secured card, it could mean that you don’t have sufficient income to cover a security deposit and minimum payments, or that your credit history shows recent and serious financial problems like bankruptcy. The specifics vary by card and card issuer. But if you’re denied for one secured card, you could still be approved for another. A secured card is the easiest type of credit card to get, after all.

More than 30 banks and credit unions offer secured credit cards, including 7 of the 12 largest credit card issuers.

Banks That Offer Secured Credit Cards

• Bank of America
• Capital One
• Citi
• Discover
• USAA (Visa and Amex)
• U.S. Bank
• Wells Fargo

A number of smaller banks and credit unions offer secured credit cards, too. They include Capital Bank, First Progress and Green Dot, among others. The major banks that do not offer secured cards are American Express, Barclaycard, Chase, PNC and Synchrony Bank.

But remember, it’s not a secured credit card’s issuer that really matters. Your goal should be to find the card with the lowest possible annual fee, no matter who offers it. And you can achieve that goal by comparing secured credit cards using WalletHub's free comparison tool. You can also try our free CardAdvisor to get a personalized recommendation based on your answers to a few simple questions.

Most secured credit cards require a deposit of at least $200. And the minimum deposit required is always a good place to start. Simply opening an account is the most important thing at this point, as it will allow you to begin rebuilding your credit. In other words, depositing the minimum lets you get started right away without having to worry about giving up too much cash.
Plus, the beauty of using a secured credit card is that you can add to your deposit over time. That gives you a higher spending limit, which allows you to improve your credit utilization and boost your credit score. In general, the more available credit you have, the more favorably credit scores treat you. Just bear in mind that most secured credit card issuers won’t allow your total deposit to exceed $5,000.

The best secured credit card for bad credit is Discover it® Secured Credit Card because it has a $0 annual fee, rewards you with 1 - 2% cash back on purchases, doubles the rewards you’ve earned after the first year, and doesn’t require a minimum credit score. The Discover it® Secured Credit Card Card’s main approval requirements are being 18+ years old and having enough income to afford monthly bill payments, plus a refundable security deposit of $200 or more.

The rest of the best secured credit cards for bad credit scores are the OpenSky® Secured Visa® Credit Card (no credit check), the Secured Mastercard® from Capital One (could be just partially secured), and the Harley-Davidson® Secured Credit Card ($0 annual fee). The first two in particular deserve recognition because of their uniquely attractive features.

OpenSky® Secured Visa® Credit Card is the best secured card for people with very poor credit because the issuer won’t check your credit history when you apply. As long as you’re at least 18 years old with a U.S. mailing address, an SSN, and income that exceeds your expenses, you should be approved. And the Secured Mastercard® from Capital One is great for people with bad, but not terrible, credit because you have the opportunity to get a credit limit that’s higher than the amount of the deposit you put down. The starting credit limit is $200, and you might be approved for a deposit of as low as $49. This card also has a $0 annual fee.

Best Secured Credit Cards for Bad Credit:

• Best Overall: Discover it® Secured Credit Card
• No Credit Check: OpenSky® Secured Visa® Credit Card
• Low Deposit: Secured Mastercard® from Capital One
• No Annual Fee: Harley-Davidson® Secured Credit Card

In general, secured credit cards are the best type of credit card for people with bad credit. Secured cards offer the highest approval odds of any credit cards, and they tend to be a lot cheaper in the long run than unsecured cards for bad credit.

You just have to make sure to pay your bill on time every month. If you do that, your credit should steadily improve. And that should help you qualify for a credit card upgrade sooner than you might think.

The best secured credit card to rebuild credit is the Secured Mastercard® from Capital One because of its low deposit requirement and $0 annual fee. The deposit is $49, $99 or $200, depending on your credit standing, but you’re guaranteed a $200 credit limit.

Another one of the best secured credit cards to rebuild credit is the OpenSky® Secured Visa® Credit Card. It doesn’t even require a credit check when you apply, which makes it great for rebuilding really bad credit. Or, if you want to enjoy some perks while you rebuild, Discover it® Secured Credit Card is a rare secured card with rewards. You get 1 - 2% cash back on your purchases.

To be clear, all major secured credit cards can help you rebuild your credit. They all report account information to the major credit bureaus every month. And all those with low annual fees and low deposit requirements are in the running for the top spot. But the Discover it Secured Credit Card, Capital One Secured and OpenSky each bring something special to the table.

Here are the best secured credit cards to rebuild credit:

• Best for Rewards: Discover it® Secured Credit Card – $0 annual fee. $200 deposit required. 2% cash back on your first $1,000 per quarter at gas stations and restaurants combined. 1% cash back on all other purchases. Rewards matched after your first year. Reports to all 3 major credit bureaus.
• Best for a Low Deposit: Secured Mastercard® from Capital One – $0 annual fee. $49, $99 or $200 deposit required. $200 minimum credit line guaranteed. No rewards. Reports to all 3 major credit bureaus.
• Best for No Credit Check: OpenSky® Secured Visa® Credit Card – $35 annual fee. $200 minimum deposit. No rewards. Reports to all 3 major credit bureaus.
• Best for low APR: First Progress Platinum Prestige Mastercard® Secured Credit Card – $49 annual fee. $200 minimum deposit. No rewards. Reports to all 3 major credit bureaus.

There are a few more cards that belong among the best secured credit cards to rebuild credit with, too. The Harley-Davidson® Secured Credit Card and the First National Bank of Omaha Secured Visa® Card don’t charge annual fees. And that’s one of the most important things to look for in a secured credit card.

The Applied Bank® Secured Visa® Gold Preferred® Credit Card also has a low APR, at 9.99%. But you probably don’t want to carry a balance from month to month with a secured credit card. It basically means paying interest on a loan you’ve given yourself, since you pre-pay your spending limit.

Choosing the best secured credit card to rebuild credit is only the first step toward actually rebuilding. You must also use that card responsibly month after month so that positive information flows to the credit bureaus. Regularly adding positive information to your credit reports gradually covers up the negative past records.

Your card will report positive information as long as you pay your bill on time every month. Using less than 30% of your spending limit each month or paying multiple times per month can also too. But if you really want to rebuild your credit, you’ll need to get the rest of your finances in order as well. That means paying down debt, catching up on past-due accounts and steering clear of collections accounts.

The best secured credit card with no credit check is the OpenSky® Secured Visa® Credit Card because it has the lowest annual fee, at $35. There are a total of 5 secured credit cards with no credit check: OpenSky Secured Visa, the First Progress secured cards, and Applied Bank Secured Visa Gold Preferred. They’re all pretty similar, too.

The annual fees on secured credit cards with no credit check range from $35 to $49 per year. All of the cards require a $200 security deposit. And they all report information to the big 3 credit bureaus each month. So any of them can help you immediately begin rebuilding your credit.

It’s important to note, however, that even a secured credit card with no credit check has some approval requirements. You have to be at least 18 years old, for one thing, and you need enough money for the refundable security deposit as well as monthly bill payments.

Best Secured Credit Cards with No Credit Check

• First Progress Platinum Prestige Mastercard® Secured Credit Card: Best for low APR
• OpenSky® Secured Visa® Credit Card: Best for low annual fee
• Applied Bank® Secured Visa® Gold Preferred® Credit Card: Best for high credit limit
• First Progress Platinum Select Mastercard® Secured Credit Card: 2nd lowest annual fee

Before you apply for a secured credit card with no credit check, make sure you actually need it. Even secured cards that require a credit check are pretty easy to get. They’re meant for people with bad credit. And the refundable security deposit you place reduces the risk for issuers.

Individual issuers may have specific requirements that rule some people out. For example, you can’t get the Secured Mastercard® from Capital One or the Discover it® Secured Credit Card with a non-discharged bankruptcy on your credit report. But there are plenty of others whose main requirement is that you have enough money to fund the security deposit. And while they may do a credit check, most applicants should still get approved.

The hard inquiry that comes with a credit check shouldn’t be too big of a deal, either, if you end up opening an account. The score damage will be temporary. And you won’t be able to qualify for any worthwhile loans until you improve your score anyway. So if you don’t need the best possible score right now, taking a short-term hit to achieve long-term gains is the way to go.

Finally, if you’re nervous about getting rejected, you can check for pre-approval before applying. Pre-approval doesn’t mean you’re guaranteed an account. But it is a sign that your odds of approval are extremely high. If after all that you’re not confident in your ability to get approved, you can always go for a secured credit card with no credit check.

A secured credit card will increase your limit under certain conditions. You can add additional funds, up to $10,000 in some cases, to your security deposit to raise your credit limit. Also, if you make several consecutive timely payments, the issuer may increase your limit without an additional deposit. For example, the Capital One will consider an increased credit limit if you make your first 5 monthly payments on time.

When you have a secured credit card, you put up a security deposit to establish your credit limit. As secured cards are designed for people with less than good credit, the deposit also serves as collateral for the issuer should you default on the account. The amount of your deposit determines your credit limit, depending on creditworthiness.

You’ll be refunded the deposit in full when you close your account in good standing. Any unpaid balance or fees owed will be deducted from your balance when you close the account.

Here is how to increase your secured credit card limit:

1. Increase the amount of security deposit. Contact customer service or log on to your secured card’s website to start the process. Provide your name, address, account number, date of birth, Social Security Number and any other information need to verify your account.

If you have a $700 limit on your secured card and want to increase the limit to $1,500, you will need to submit an $800 payment. You can make your deposit over the phone or online using a checking account or with another credit card. If you are unable to do so, request a mailing address to send a check or money order.

Check with the issuer to make sure your deposit is within the secured card’s limits. Some cards, such as the Wells Fargo Secured have a maximum deposit amount of $10,000.

1. Make several consecutive online payments. Many issuers will evaluate your account after you make your first several payments on time and consider an increase in your credit limit without an additional deposit. The drawback is you have no control over how much you credit limit will be increased, if at all.

Also, you won’t know when the issuer will evaluate your account. The issuer will perform a soft inquiry on your credit score to determine if you’re eligible for a credit limit increase. A soft inquiry does not affect your credit score, nor does the issuer need your permission to generate the inquiry.

An alternative to a credit limit on your secured credit card is a secured card. If you’ve kept up timely payments, and have had your secured card for more than 12 months., contact your issuer and request an upgrade to a secured card. If approved, your credit limit may be higher than on your secured card. Plus, you will receive a refund on your security card. If the issuer declines, you can always search elsewhere and apply for an unsecured card that best fits your credit profile.

In either scenario, a hard inquiry will be generated on your credit score. Hard inquiries can have a slight negative impact on your credit score, so if you’re teetering on the border of good credit, it might be best to wait a few months and apply after you’ve raised your credit score a few more points.

The Capital One Secured credit card works like a regular credit card except that the customer must put down a security deposit to open the account. The minimum deposit amounts are $49, $99 or $200, based on your credit. The security deposit is fully refundable when you close the account and pay off the entire balance.

Typically, the amount of a secured credit card’s security deposit determines its credit limit. However, the two amounts don’t always match with the Capital One Secured card. Even with a $49 or $99 security deposit, you’re guaranteed at least a $200 credit limit. Not everyone is approved for one of the card’s lower security deposits, though.

Everyone can increase their limit up to $1,000 by adding funds to their deposit, however. Just deposit additional money (up to $800) within 35 days of being approved and get a spending-limit boost equal to the extra amount you deposit. Capital One may also increase your credit limit with no increases to the security deposit. You become eligible after making your first five payments on time.

After you pay the security deposit in full, you can use the Capital One Secured card for purchases, just like a regular credit card. You won’t earn rewards on your purchases, as the Secured card’s primary purpose is to help you establish or rebuild credit. Capital One Secured reports to the major credit bureaus every month.

Once you’ve built a solid credit profile with the Secured credit card, Capital One may graduate the card to an unsecured account. You will receive your deposit refund as a statement credit which will be applied to the unsecured account balance. You may also close the Secured card account and apply for an unsecured card on your own.