What Is a Secured Credit Card?
A secured credit card is a type of credit card that requires the user to place a cash security deposit, the amount of which usually becomes the credit limit for the card. The card’s issuer holds the money as collateral until the account is closed, and they can keep it if you default on your debt.
Secured credit cards are the easiest type of credit card to get, and they usually have low annual fees. A secured credit card can also help you build or rebuild your credit, just like a “normal credit card.”
Key Things to Know About Secured Credit Cards
- A refundable security deposit is required to open the account.
- A secured card’s credit limit usually equals the amount of the cardholder’s security deposit, so you can’t really borrow money with a secured credit card.
- 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.
How a Secured Credit Card Works
Aside from the security deposit, a secured credit card works just like any other credit card. You have to make monthly payments to keep your account in good standing and your credit score going up, and you pay to pay your full balance by the due date to avoid interest charges. Some secured cards even reward you for making purchases.
To give you a better idea of how secured credit cards work, we’ve laid out the steps involved with getting and using one below.
- You apply for the card. You may be able to apply online, by phone, by mail or at one of the issuer’s branches. Applying online is the easiest, and most people stand a decent chance of qualifying, as long as they can afford the security deposit and payments on the card. You can learn more about how to get a secured card on WalletHub.
- 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.
- 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. Many secured credit card issuers allow you to make a deposit larger than the minimum amount and/or add to your deposit over time in order to increase your spending limit.
- The credit card company holds your deposit as collateral. The funds are usually kept in a bank account that does not gain interest.
- 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 at least the minimum required payment by the due date each month. Any balance you carry from month to month will accrue interest, and it’s usually a bad idea to carry a balance on a secured card because the APRs tend to be high and you’re borrowing against your own deposit.
- 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. If you default on your payments, though, the issuer will keep your deposit to recoup their money.
- You can 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, updated daily. You’ll also receive personalized credit-improvement advice to help you graduate to an unsecured card sooner.
Get Your Personalized Credit Advice – 100% Free
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.
5 Myths About How Secured Credit 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 first choice if you have bad credit and don’t need an emergency loan. Secured cards 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. 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, as they report to the credit bureaus on a monthly basis. 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. That’s no big deal if credit improvement is your top priority and you plan to pay your bill in full every month, though.
- 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.
Opinions and ratings are our own. This report is not provided, commissioned or endorsed by any issuer. WalletHub independently collected information for some of the cards on this page.
Best Secured Credit Card Examples
You won’t truly understand secured credit cards until you get into the nitty-gritty with some actual offers. So WalletHub’s editors compared dozens of secured cards and picked some of the best, most popular offers for you to consider. Each of their selections, which you can check out below, is a great example of what you should look for in a secured credit card.
Here are some of the best secured credit cards:
minimum deposit$300 | minimum deposit$200 | minimum deposit$300 | minimum deposit$300 |
one time fees $0 | one time fees $0 | one time fees $0 | one time fees $0 |
annual fee $0 | annual fee $0 | annual fee $0 | annual fee $0 |
monthly fee $0 | monthly fee $0 | monthly fee $0 | monthly fee $0 |
Regular APR29.99% (V) | Regular APR29.99% (V) | Regular APR29.99% (V) | Regular APR29.99% (V) |
rewards rate
| rewards rate
| rewards rate N/A | rewards rate
|
SponsoredApply Now | SponsoredApply Now |
Secured credit cards with no annual fee aren’t always available. But if you can find one, getting it and paying your bill in full and on time every month will leave you with a better credit score and more money. You can learn more about the best secured credit cards right here 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. However, there are a few cases where an alternative to a secured credit card may be the better choice.
- Unsecured Credit Cards for Bad Credit
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.
- Unsecured Credit Cards for Limited/No Credit
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.
- Prepaid Cards
Prepaid cards are good for setting a strict budget and not being able to exceed it, and once you’ve paid for something with them, you don’t have to worry about owing any additional money. However, they 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.
- Credit-Builder Loans
If you are simply looking to build credit and aren’t worried about making purchases, you could consider getting a credit-builder loan. Offered by some banks and credit unions, these loans are designed specifically to help individuals build or repair their credit.They work the opposite way of a regular loan. After the loan is approved, the bank holds the loan amount in a savings account while the borrower makes monthly payments. Once the loan is fully repaid, with interest, the borrower receives the money. Payment activity is reported to the credit bureaus, which helps the borrower build credit.
- Authorized User Status
If a family member or friend is willing to add you as an authorized user on their credit card account, this can help improve your credit score. Even if you don't use the card, the account's positive payment history can be reported on your credit report. However, it's important to ensure that the primary account holder continues to make timely payments.
Bottom Line
The only thing that’s unique about a secured credit card is the security deposit that you have to place to get one. This deposit generally doubles as your spending limit, preventing you from charging more than you can afford to repay. So you’re not really borrowing anything with a secured credit card, which is why such cards are easy for even people with bad credit to get.
The deposit requirement also helps explain why secured credit cards are so much cheaper than unsecured credit cards for people with bad credit. Repayment for balances racked up with an unsecured card isn’t guaranteed, so issuers charge non-refundable fees to compensate.
The combination of high approval odds and low fees make secured cards the best tool available for building or rebuilding your credit.
If you still have questions about secured credit cards, you can probably find the answer on WalletHub’s Secured Card FAQ page.
WalletHub experts are widely quoted. Contact our media team to schedule an interview.