How Does a Secured Credit Card Work? Basics & Examples
This content is not provided or commissioned by any issuer. Opinions expressed here are the author’s alone, not those of an issuer, and have not been reviewed, approved or otherwise endorsed by an issuer.
Secured credit cards are actually very easy to understand. The most unique thing about them is the fact that you’re required to place a refundable security deposit when you apply. If approved, your credit limit will generally equal the amount of that deposit, which the issuer will hold as collateral until you close your account. And if your application is rejected, you’ll get the money back right away.
But because secured credit cards prevent you from spending more than you can afford to repay, the risk to issuers is low. So secured credit cards offer the highest approval odds of any credit cards, and even people with very bad credit can get them. As a result, secured cards are also far less expensive than unsecured credit cards for bad credit, which charge high non-refundable fees and interest rates.Compare Secured Credit Card Offers
Given their low costs and high approval odds, a secured credit card is the best choice for someone looking to build or rebuild their credit standing. All major secured credit cards report account information to at least one of the big three credit bureaus on a monthly basis, and that’s all the opportunity you need to improve your credit score. As long as you pay the bill on time every month, positive information will flow into your credit reports, building a track record of responsibility and covering up mistakes from the past, if applicable.
Most secured credit cards will not, however, allow you to borrow money to cover expenses that you can’t already afford. Your spending limit almost always equals the amount of your security deposit. The rare exception is an offer such as the Capital One® Secured Mastercard®, which could be “partially secured.” That means you might be offered more spending power than you’re required to put down, depending on your credit history, income and debt obligations.
So despite having a unique name, secured cards really aren’t too different from “normal,” or “unsecured,” credit cards. But to truly understand that, you’ll need to consider some specific offers.
Here’s how popular secured credit cards work:
|Best Secured Cards||Min. Refundable Deposit||Min. Credit Limit||Annual Fee||Reports to Credit Bureaus?|
|Capital One® Secured Mastercard®||$49, $99 or $200||$200||$0||Monthly|
|Discover it® Secured||$200||$200||$0||Monthly|
|Citi® Secured Mastercard®||$200||$200||$0||Monthly|
|Harley-Davidson® Secured Credit Card||$300||$300||None||Monthly|
|OpenSky® Secured Visa® Credit Card||$200||$200||$35||Monthly|
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 top secured credit card offers in greater detail 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.
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.
Capital One® Secured Mastercard®
Discover it® Secured
Citi® Secured Mastercard®
Harley-Davidson® Secured Credit Card
OpenSky® Secured Visa® Credit Card
|Rewards Rate||N/A||1 - 2% Cash Back||N/A||1 point / $1||N/A|
|Purchase Intro APR||Not Offered||Not Offered||Not Offered||Not Offered||Not Offered|
|Transfer Intro APR||Not Offered||10.99% for 6 months|
Transfer Fee: 3% intro balance transfer fee, up to 5% fee on future balance transfers (see terms)*
|Not Offered||Not Offered||Not Offered|
|Regular APR||26.99% (V)||25.24% (V)||24.74%* (V)||25.24% (V)||19.64% (V)|
|Editors’ Rating||5.0 / 5||5.0 / 5||4.6 / 5||5.0 / 5||4.0 / 5|
|Details, Rates & Fees||Learn More||Learn More|
Rates & Fees
|Learn More||Learn More||Learn More|
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 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 and are much less expensive. 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 starter 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 Look Different on Credit Reports – FALSE
The Truth: Secured credit cards are indistinguishable from unsecured cards on credit reports. There’s no difference in their credit-building capabilities.
- 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.To learn more, check out WalletHub’s answers to secured card FAQs. You can also track your credit improvement for free on WalletHub, the only site with free credit scores and repots that update daily. Plus, signing up for a free account will get you personalized credit improvement tips and credit card recommendations.
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