What is a secured credit card?

3 min read

This page includes information about Discover products that are not currently available on Bankrate and may be out of date.

When you have a bad credit score of 579 and lower, obtaining any financial product — let alone one of quality — can be a difficult process. Thankfully, there are tools that can help you rebuild your credit, namely a secured credit card.

How do secured credit cards work?

Secured credit cards are available to those with no credit history or a low credit score. To utilize a secured card, you need to provide a cash security deposit (normally $200 to $500) as collateral. In most cases, the amount of your deposit determines your credit limit for the card.

Can you get your security deposit back?

If you were ever to forget to pay your monthly bill, your issuer can use the money from your security deposit to cover the charge. In this scenario, you won’t receive your deposit back. In most cases, you’ll get your deposit back once you close your account with a paid-off balance or graduate to an unsecured credit card. The exact details of when and how you get your security deposit back vary based on the issuer.

How long does it take to build credit with a secured credit card?

There’s no hard and fast rule for how long it should take to build credit, but you can slowly do so by simply paying your monthly credit card bill on time and in full.

Some secured credit cards offer credit-building incentives based on paying your monthly bill on time and responsible use. For example, the Capital One® Secured Mastercard® offers access to a higher credit line in as little as six months. A higher credit line can, in turn, lower your credit utilization ratio, a factor that determines 30 percent of your credit score.

Through “lowering” anything in relation to your credit score (other than debt) may seem like a bad thing, your credit utilization ratio actually benefits from being lowered. Ideally, you should use less than 30 percent of your available credit, though using as little as 10 percent can be even more beneficial depending on the credit scoring model.

Bankrate’s best secured credit card picks for 2020

If you’re interested in changing the course of your credit score this year, take a look at Bankrate’s list of the best secured credit cards for 2020.

Best for earning rewards: Discover it® Secured

There aren’t too many secured cards that earn you rewards for your spending, but the Discover it® Secured is one of them.

For no annual fee, the card gets you 2 percent cash back at gas stations and restaurants (up to $1,000 in combined purchases each quarter, then 1 percent) and an unlimited 1 percent cash back on everything else. The Discover it Secured allows you to deposit between $200 and $2,500, and your credit limit will be determined by however much you deposit.

Besides offering a pretty solid rewards structure, Discover extends its Cashback Match™ benefit to the card: At the end of your first year, Discover will match all of the cash back you’ve earned. That means if you earned $100 in cash back with the Discover it Secured, your earnings would double to $200 cash back for the first year.

Best for improving your credit score with responsible use: Capital One® Secured Mastercard®

The Capital One® Secured Mastercard® requires a $49, $99 or $200 refundable deposit which doubles as your credit line. As noted above, you will automatically be considered for a higher credit limit in as little as six months.

If you don’t have the means to pay your security deposit all at once, this card may be your best option: Capital One allows you to pay your deposit (after approval) over a 35-day period in at least $20 increments.

The card doesn’t offer a rewards structure, but it doesn’t charge an annual fee, either.

Best for flexible payments: Citi® Secured Mastercard®

With the Citi® Secured Mastercard®, you have the power to decide when your bill is due — choose either the beginning, middle or end of each month. If you depend more heavily on your monthly or biweekly paychecks, this feature can help you schedule your card’s due dates around them and ensure you stay on top of your payments.

There’s a minimum security deposit of $200 (with a maximum deposit of $2,500) and you won’t owe an annual fee. Unfortunately, this card doesn’t earn your rewards for your purchases.