Secured Credit Card
What Is a Secured Credit Card?
A secured credit card is a credit card that requires a refundable security deposit to open the account.
The deposit typically becomes your credit limit.
For example:
- You deposit $500.
- Your credit limit is $500.
- Secured cards are designed to help people build or rebuild credit.
How a Secured Credit Card Works
Here’s the basic process:
- You apply and provide a security deposit.
- You receive a credit line equal to or slightly above your deposit.
- You use the card like any other credit card.
- Your payment activity is reported to credit bureaus.
If you use the card responsibly and pay on time, you build positive credit history.
Many major issuers, including Capital One and Discover, offer secured credit card options.
Why Secured Credit Cards Matter
Secured cards can be powerful for:
- First-time credit users
- Students
- Individuals rebuilding after missed payments
- Those with limited credit history
Because the deposit reduces the lender’s risk, approval is often easier compared to unsecured cards.
Credit scoring models developed by FICO treat secured cards like traditional credit cards when reporting payment history.
Secured vs. Unsecured Credit Cards
- Secured Card → Requires deposit. Lower approval barrier.
- Unsecured Card → No deposit required. Approval based on creditworthiness.
Over time, many secured cards can be upgraded to unsecured cards with responsible use.
What Happens to the Deposit?
Your deposit is:
- Refundable when you close the account in good standing
- Often returned if you upgrade to an unsecured card
However, if you default, the issuer may use the deposit to cover unpaid balances.
FAQs About Secured Credit Cards
Does a secured card build credit?
Yes, if the issuer reports to the major credit bureaus.
Is the deposit a payment?
No. It’s collateral. You still must pay your monthly balance.
Can I get my deposit back?
Yes, if your account is closed in good standing or upgraded.
Are secured cards expensive?
Some may have annual fees. Always review terms carefully.
Related Terms
