What is a secured credit card and how does it work?

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When your credit score is in the lowest range—579 or below—finding a credit card issuer who will approve you for one of its products can seem like an impossible feat. Fortunately, card issuers offer one type of credit card that almost anyone can be approved for. With a secured credit card, consumers with poor credit get the chance to build credit, practice good credit card habits and prove their creditworthiness over time.

What is a secured credit card?

Secured credit cards are a type of credit card that requires a cash deposit as collateral. This credit limit is often equal to 50 percent to 100 percent of the amount of the initial deposit. If you apply for a secured credit card and put down a $1,000 deposit as collateral, for example, you’ll likely qualify for a $500 to $1,000 line of credit as a result.

You may be wondering why anyone would want a credit card that requires a cash deposit upfront, but it makes sense why consumers with poor credit might be willing to apply. Getting approved for a traditional, unsecured credit card can be very difficult when your credit score is poor, yet you may not be able to improve your credit over time if you can’t find a lender to give you credit.

With a secured credit card, on the other hand, consumers who need to work on their scores can secure a line of credit with a cash deposit. And since their payments are reported to the three credit bureaus, they get the opportunity to build credit and improve their credit rating over time. Double-check with the issuing company to make sure it will be reporting your payment history to the three main credit bureaus. If it doesn’t, you won’t be able to help your credit by using the secured credit card.

How does a secured credit card work?

A secured credit card functions similarly to a debit card. You’re essentially relying on your cash deposit, which is what translates to your secured line of credit, to make purchases.

Let’s take a closer look at how secured credit cards work.

To get a secured credit card, you can apply for one at a bank, credit union or credit card company. The financial institution you’re working with may check your credit history during the approval process.

If approved, you’ll need to make a deposit that acts as collateral. This is often at least $200 and can be as high as $2,000 to $3,000. In some cases, your deposit amount will act as your credit limit, although your limit may also be less than the deposit amount. After making the initial deposit, you can use the card to make purchases in-person or online up to your credit limit amount.

Once you pay off your balance for any recent purchases, you can then use the card again to make more purchases. If you don’t pay off your balance in full each month, you will start to incur interest on the carried balance.

The secured credit card provider should report information about your account to the three main credit bureaus, which can help build your credit score.

Secured vs. unsecured credit cards

Generally speaking, unsecured credit cards are a better deal for consumers. When a card is unsecured, this means you don’t have to put down a deposit as collateral. Unsecured credit cards also tend to come with better perks and rewards, lower fees and lower interest rates.

The following chart explains some of the biggest differences between secured versus unsecured credit cards:

Unsecured credit cards Secured credit cards
Minimum credit score to qualify Usually 670+ Available for scores below 579
Deposit required? No Yes
Average APR Around 16 percent (as of February 2021) Often over 20 percent
Annual fee charged? Sometimes Usually
Helps you build credit by reporting to credit bureaus Yes Usually
Rewards available? Yes, with many rewards credit cards Usually no

How to build credit with a secured vs. unsecured card

When it comes to building your credit score, you’ll use the same process with a secured credit card as you would with an unsecured credit card.

Both types of cards typically report to the three credit bureaus—Experian, Equifax and TransUnion. This means your balances and credit card payments will be noted by the credit bureaus and you’ll start building a history of positive payments and responsible credit usage.

If your goal is building credit and keeping your score in the best shape possible, you should strive to pay your credit card bill early or on time each month and keep your credit utilization rate below 30 percent.

Best secured credit cards for 2022

In the market for a secured credit card? If so, you should take the time to compare all the top offers to find one with the best benefits and lowest fees. Bankrate compared dozens of secured credit cards to find the best offers available, and here are the top three options:

Best for earning rewards: Discover it® Secured Credit Card

The Discover it® Secured Credit Card is one of the few secured credit cards that lets consumers earn rewards without charging an annual fee. You’ll earn 2 percent cash back at gas stations and restaurants (up to $1,000 in combined spending each quarter, then 1 percent) and an unlimited 1 percent cash back on everything else. The Discover it® Secured Credit Card also allows you to set your own line of credit between $200 and $2,500, depending on the deposit amount you put down.

At the end of your first year, Discover will match all of the cash back you’ve earned. You also get free FICO credit score access on your credit card statement each month, which can help you monitor your credit progress over time.

Best for no credit check: OpenSky® Secured Visa® Credit Card

The OpenSky® Secured Visa® Credit Card is a good option if you don’t have any credit history at all. You’ll have to pay a $35 annual fee to carry this card, but you get the chance to get a credit card without any sort of credit check. This card lets you choose your own line of credit amount based on the deposit you put down (between $200 and $3,000), and your credit movements will be reported to all three credit bureaus.

This card doesn’t offer any rewards or perks, but it can be a solid option if you want a credit card but don’t want a new hard inquiry on your credit report.

Best for low deposit requirements: Capital One Platinum Secured Credit Card

The Capital One Platinum Secured Credit Card lets you secure a line of credit with a $49, $99 or $200 refundable deposit, which makes this card a good option for anyone who doesn’t have a lot of cash to put down. What’s more, Capital One will monitor your account to check if you will be automatically considered for a higher credit line in as little as six months with on-time payments.

You won’t earn any rewards with this card, but you won’t pay an annual fee to carry it, either. You also get the chance to pick your own monthly due date, which can be convenient if you prefer to pay your credit card bill at the end of the month or around payday.

Written by
Holly D. Johnson
Author, Award-Winning Writer
Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics. In addition to writing for Bankrate and CreditCards.com, Johnson does ongoing work for clients that include CNN, Forbes Advisor, LendingTree, Time Magazine and more.