Credit Score
Secured Credit Card
Secured credit card summary:
Secured credit cards require cash to open.
Secured cards are some of the best credit cards for bad credit.
Building your credit score is the point of opening a secured credit card.
Secure Credit Card Definition and Meaning
A secured credit card is a type of credit card that requires you to deposit cash as collateral. Credit score building is the point of opening a secured credit card. Like unsecured cards, it’s possible to build credit if you pay on time and keep your balance low.
Why open a secured credit card: You can apply for a secured card with a poor credit score or a nonexistent credit history.
Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide or offer services or advice to repair, modify, or improve your credit.
Key Features of a Secured Credit Card
Deposits, credit building, and upgrade potential are key features of the secured credit card.
Deposits
You deposit cash to open a secured card. Your deposit usually equals your credit limit ($200 to $500, typically). The deposit is a financial safety net for the creditor. Your creditor will refund this deposit when you upgrade to an unsecured credit card or close the account, as long as your account is in good standing and you’ve paid off your outstanding balance.
Credit building
You typically open a secured credit card to build credit. The main benefit of secured cards is that they’re easy to open. You can apply for a secured card with a low credit score or zero credit history. Since you’re making a cash deposit, you don’t need good credit.
Upgrade potential
You can sometimes upgrade a secured card to an unsecured card after a period of responsible use. Six to 12 months is about how long it takes to upgrade your secured credit card.
Creditors are likely to upgrade you if you pay your bills on time, maintain a low balance, and demonstrate these habits for six months or longer.
Secured Credit Card: a Comprehensive Breakdown
A secured credit card could be a gateway to good credit. You put down a deposit to open a credit card for bad credit, which gives you the opportunity to build your credit score by making timely payments.
There are major differences between secured and unsecured cards.
Secured vs. unsecured credit cards
The point of a secured card is to build or improve credit. It’s relatively easy to open a secured card.
The point of an unsecured card is usually convenience. Unsecured cards offer higher credit limits and better benefits. They’re also more difficult to open.
Feature | Secured Credit Card | Unsecured Credit Card |
Deposit | Yes, typically sets credit limit | No deposit |
Credit Limit | Low | Higher, based on credit |
Who Can Get It | Just about anyone | Someone who qualifies based on credit score and financial profile |
Interest | Higher than average | Potentially lower for people with high credit scores |
Fees | Could have fees | Could have fees |
Rewards | Rare | Common |
Purpose | Build credit | Convenience and rewards |
Alternatives to the secured credit card
Alternative to secured cards include opening an unsecured card for bad credit or becoming an authorized user on a family member’s credit card.
You might qualify for an unsecured credit card for bad credit with a poor credit score or short credit history. If so, you could use it to build credit. The upside is you don’t need to deposit money. The downside is that interest and fees tend to be higher.
Becoming an authorized user on a family or friend’s credit card lets you build your credit history without opening your own credit card account. Whether your credit score improves depends on the primary account holder—if they pay their bills on time and keep the balance low, your score could benefit.
Secured Credit Card FAQs
What is a secured credit card?
Most credit cards are unsecured. That means there's no collateral or security deposit pledged. The lender assumes the risk if the borrower doesn't pay the bill.
A secured credit card requires a cash deposit. It acts as a form of insurance that you will repay the debt. Often, the amount of the deposit will be your credit limit. Your purchases aren't, however, deducted from the deposit. That's how prepaid debit cards work, not secured cards. The secured card issuer will hold onto your deposit. You can make purchases, and you'll receive a bill to pay each month. If you don't pay off your charges by the due date, you'll pay interest on your balance. If you don’t pay your bill at all, the creditor can keep your deposit.
If you get a secured card, be sure the issuer reports to the major credit reporting agencies. Otherwise, you won't build credit. Stay up to date on payments, and a secured card could give you the opportunity to build your credit standing.
Do all secured credit cards report to credit bureaus?
Not all secured cards report to the credit bureaus, so be sure to choose one that does. Otherwise, you won’t build credit.
How fast will a secured card build credit?
Obtaining a secured credit card could help you establish credit in a matter of months. However, it may take longer to maintain and improve your credit rating. A positive credit history is built over time.
If you're just getting started with credit, getting a credit score requires at least one open account, and the account must be open for at least six months.If you're recovering from credit damage, your most recent activity is more important than older activity.
Maintaining control of your account is key. Once you open a secured credit card, reporting takes place right away. Don't miss even a single payment.
Your secured card will be reported as soon as it's opened, and the payment history will be reported starting with the first month. As soon as you make your first on-time payment, you're establishing positive credit history.
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