Secured credit cards work like any other credit card except secured cards require you to put down a refundable security deposit. Your credit limit will generally equal the amount of that deposit, which the issuer will hold as collateral until you close your account.
Key Things to Know About How Secured Cards Work
- A refundable security deposit is required to open the account.
- Your security deposit is usually equal to your credit limit.
- Secured credit cards offer the highest approval odds of any credit cards, and even people with very bad credit can get them.
- Most secured credit cards report account information to the credit bureaus on a monthly basis, giving you the chance to improve your credit score if you make on-time payments.
- Secured cards work the same way as a regular credit card, except for the security deposit.
Below, you can learn more about how secured cards work, from the time you apply to when you close your account. We’ll also compare popular secured credit card offers and dispel some common secured card myths.
How Secured Credit Cards Work – Illustrated
For all you visual learners out there, we put together a step-by-step illustration of a secured credit card’s lifecycle. This will help you understand what to expect from start to finish.
Opinions and ratings are our own. This review is not provided, commissioned or endorsed by any issuer.
Popular Secured Credit Card Offers
Now that you understand how secured credit cards work, generally, you may want to revisit what the top offers bring to the table, specifically. Below, you can see how popular offers compare in key categories
5 Myths About How Secured Cards Work
Despite how simple secured credit cards truly are, people still have a lot of misconceptions about how they work, who should use them and more. Let’s put some of the biggest ones to rest so you don’t get tripped up on your way to top WalletFitness.
- Secured Cards Are a Last Resort – FALSE
The Truth: A secured credit card should actually be your top choice if you have bad credit and don’t need an emergency loan. They have higher approval odds than unsecured cards for bad credit. A secured credit card also is a good way to start building credit from scratch, especially if you don’t get approved for the first credit card that you apply for.
- Secured Cards Are Expensive – FALSE
The Truth: Secured credit cards are actually far less expensive than unsecured cards for bad credit. Instead of high monthly, annual and application-processing fees, secured cards require you to put down a refundable deposit, which you’ll ultimately get back. And many secured cards don’t charge annual fees as a result.
- Secured Cards Don't Help to Build Credit – FALSE
The Truth: Secured credit cards are indistinguishable from unsecured cards on credit reports. There’s no difference in their credit-building capabilities. The actual card you carry also won’t have the word “secured” on it.
- Secured Cards Are Good for Borrowing – FALSE
The Truth: Since a secured card’s spending limit typically equals the amount of the deposit you’re required to place, you won’t be able to use such a card to finance purchases that you can’t fully afford without the card. But that’s no big deal if credit improvement is your top priority and you plan to pay your bill in full every month.
- Secured Cards Offer Guaranteed Approval – FALSE
The Truth: No credit card offers 100% guaranteed approval. But secured credit cards come closest. Some don’t even require a credit check. You may simply need a U.S. mailing address and income that exceeds your monthly expenses. That’s why secured cards are the easiest credit cards to get.