What Is a Secured Credit Card?
A secured credit card is a type of credit card that requires you to place a refundable security deposit. The amount of this security deposit will serve as the secured card’s credit limit, preventing you from overspending and ensuring the card’s issuer gets paid back for charges. Any balance remaining on your account when you close it will be deducted from your security deposit, and only the difference will be returned to you.
Secured credit cards are the easiest type of credit card to get approved for, given the deposit requirement. They are best for people with bad credit or limited credit history. Here are some notable examples of secured credit card offers:
Popular Secured Credit Cards in 2023
Learn more about what a secured credit card is and how secured cards work. You can also find more information below.
How a Secured Credit Card Works
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You place a refundable security deposit using a bank transfer
A debit card or check could be an option, too, depending on the card. Some secured cards require you to place a deposit when you apply, others after you’re approved. The minimum deposit for most secured cards is $200 or $300.
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The amount of your deposit becomes your spending limit
This prevents you from spending more than you can afford to repay, which benefits both you and the card issuer in the long run. For what it’s worth, you can usually add to your deposit over time for more spending power.
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The credit card company holds your deposit as collateral
The funds are usually kept in a custodial account that does not bear interest.
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Purchases and payments are the same as with any other credit card
You can spend up to your credit limit. You’ll have to pay your bill by the due date each month. And any balance you carry from month to month will accrue interest.
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You get the deposit back when you close your account
You’ll have to bring your account balance to zero first. But after you do (or the issuer subtracts what you owe), you’ll get a check or bank transfer returning your deposit money.
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Graduate to an unsecured card
After using a secured credit card responsibly for at least 12 months, you should be able to graduate to an unsecured credit card. Your secured card’s issuer might even offer to convert your account to unsecured by giving back your security deposit. If your card doesn’t charge an annual fee, you should definitely consider keeping it open. This would help make your credit history appear longer, benefitting your credit score.
You can track your progress for free on WalletHub. You will be able to see your latest credit score and report, which are updated daily. You’ll also receive personalized credit-improvement advice to help you graduate to an unsecured card sooner.
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Secured vs. Unsecured Credit Cards
Secured and unsecured credit cards are the two main types of credit cards. The difference between secured and unsecured credit cards is that secured cards require cardholders to place a refundable security deposit when opening an account. A secured card’s spending limit usually matches the amount of the deposit, preventing cardholders from spending more than they can afford to pay back and making the cards easier to get approved for.
Aside from the deposit required by secured cards, there is no fundamental difference between secured and unsecured credit cards. For example, all major secured credit cards report usage information to the major credit bureaus and can therefore help you build credit. In fact, secured cards are indistinguishable from unsecured cards on your credit reports.
Learn more about the similarities and differences between secured and unsecured credit cards.
Why Use a Secured Credit Card?
Secured credit cards are cheaper than unsecured credit cards for people with bad credit.
Secured credit cards don’t need to charge the high fees and interest rates that unsecured cards for people with bad credit are known for because a secured card’s deposit protects the issuer instead.
Secured credit cards are easy to get.
Most secured cards require a minimum deposit of $200. If you can meet that requirement and you have a valid Social Security number (SSN) as well as enough independent income or assets to make monthly minimum payments, you should be able to get approved no matter how bad your credit score may be.
Some secured credit cards won’t even check your credit when you apply. Some will accept an Individual Taxpayer Identification Number (ITIN) or a passport instead of an SSN, too.
Secured credit cards let you choose your spending limit.
Given that your security deposit doubles as your credit line, you can increase your spending power at any time by simply adding to your deposit. This is helpful to credit building efforts as well, since available credit is an important component of your credit score.
Secured credit cards protect you against overspending.
With a secured credit card, there’s usually no way to spend more than you can afford to pay back, given the unique relationship between the security deposit and the spending limit.
Learn more about the top reasons to use a secured credit card.
Who Should Use a Secured Credit Card?
People with limited credit
Students, recent immigrants, divorcees, and anyone who hasn’t used credit for an extended period of time may find it difficult to garner approval for an unsecured card or any type of loan. The relative lack of information in their credit files creates uncertainty in the minds of issuers over whether or not they’ll pay their bills, but the financial security provided by a secured card makes this a moot point.
People with damaged credit
There simply isn’t a less expensive way to rebuild your credit standing than opening a secured credit card and using it responsibly. Not only are secured credit cards inexpensive, but they are also the easiest type of credit card to get approved for.
People who don’t want to make purchases with a credit card
Even if you don’t want to make any purchases with your card, it will still be an excellent credit-building tool given that it will report information to the credit bureaus on a monthly basis anyway.
More specifically, you can open a secured credit card account, activate it, and still rebuild your credit even if you don’t use it. Even though there won’t be any activity on your account, you’ll still get reported to the credit bureaus as being on time with your payments (you can’t be late when there’s no payment due). Since you will constantly be current on your payments, you will continue to be reported as being in good standing on your account, thereby improving your credit score. The only thing you have to do is remember to pay your membership fee once a year, and the rest will take care of itself.
Learn more about when it makes sense to get a secured credit card.
Disadvantages of Using a Secured Credit Card
Secured credit cards offer a number of benefits to consumers, but lucrative rewards and zero percent interest rates don’t tend to be among them. This is not surprising, however, as such perks are primarily the domain of unsecured credit cards for good and excellent credit, for which secured cards serve as a stepping stone.
Plus, there aren’t nearly as many different secured credit cards on the market as unsecured credit cards. Therefore, a relative lack of options from which to choose could be construed as a disadvantage.
Learn more about the pros and cons of secured credit cards.
How to Get a Secured Credit Card
- Compare secured credit cards to find the right card for you.WalletHub’s editors’ picks for the best secured credit cards are a great starting point. Aim for a card with a $0 annual fee and rewards that suit your spending habits.
- Fill out an application.You need to be at least 18 years old, and you need to have a Social Security number, an ITIN or a passport, along with a U.S. address that’s not a P.O. Box.
- Prepare your security deposit.When you apply for a secured credit card, be prepared to either provide your bank account information or open a savings account with the card’s issuer to pay the deposit. Some credit card issuers let you pay the deposit later, though.
- Wait for a decision.You could get approved instantly if you apply online. Otherwise, it could take up to 10 business days.
- Receive for your credit card in the mail.Your new secured credit card will arrive in the mail 7-10 days after you’re approved and you submit your security deposit.
Learn more about how to get a secured credit card.
How Long Does It Take to Build Credit With a Secured Credit Card?
You should see significant credit score gains after roughly a year of responsible secured card use (i.e. always paying your bill on time). At this point, you may be able to qualify for an unsecured credit card. However, a lot depends on your specific starting point and how you manage your secured credit card account. You may see some improvement in as little as one month.
You can track your progress with free credit score updates on WalletHub.
Secured Credit Card Alternatives
If you have bad credit and don’t need a small emergency loan, there’s no need to even consider other options. A secured credit card is definitely your best bet. It’s just a matter of finding the best one for your needs. And we generally recommend starting with any no annual fee offers that are available and then using rewards as a tiebreaker. You shouldn’t worry about interest rates because you shouldn’t carry a balance from month to month with a security card. You have to pay the security deposit, so you’d basically be lending money to yourself and charging a high rate of interest on the balance.
If you have damaged credit and need a line of credit to pay for emergency expenses, you’ll have to make do with an unsecured credit card for bad credit. Such cards are known for charging extremely high rates and fees for very little added spending power. So they should be avoided whenever possible.
If you have limited or no credit, secured credit cards may have some competition. For example, some starter credit cards don’t charge annual fees or require a security deposit. And even better, student credit cards add lucrative rewards to the mix.
Finally, it’s worth noting that prepaid cards won’t be of much help in terms of either credit building or short-term financing. Prepaid cards don’t affect credit scores because they’re not included in our major credit reports. And they don’t provide any sort of loan or line of credit. They’re more like debit cards without the checking account.