Secured card

What is a secured card?

A secured card is a credit card that is backed by a deposit or savings account to ensure that the bill is paid, even if the cardholder defaults on payments. Secured cards are used by people to rebuild poor credit or to establish a credit history.

Deeper definition

A secured card is usually linked to a savings account with a certain amount of money in it, allowing the institution that issues the card to access the funds if the cardholder fails to make payment. The card issuer sets the credit limit on a secured card based on a few factors, such as the applicant’s credit history, income and the amount available in the linked account that backs, or secures, the card.

Because secured credit cards allow users to build or rebuild credit, the cardholder may be able to qualify for an unsecured credit card after responsibly using and making payments on a secured card for a period of time.

Secured card example

Jane has a poor credit history due to non-payment of previous credit cards and had been unable to qualify for any new credit cards. She applied for a secured credit card that offered a $700 spending limit with the stipulation that she put down a deposit or connect the card to a savings account with a minimum amount in it. Her deposit or savings served as a safety net to make sure her bill was paid each month, even if she was unable to pay for some reason.

Jane used the card wisely, never spending more than what was in her linked account, and paid the bill on time every month. Eventually, Jane’s responsible use of the secured card paid off; she rebuilt her credit, raised her credit score and was able to qualify for a regular, unsecured credit card.

Do you think a secured card is right for you? Find out the 10 questions to ask before getting one.

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