If you’re attempting to build or rebuild your credit, you may struggle to obtain a traditional credit card, but secured credit cards offer a solid alternative.
Secured credit cards are a type of credit card that require a cash deposit to get started. Secured cards reduce risk to card issuers — if a customer defaults on payments, the issuer takes the amount owed from the deposit — so the credit requirements for secured credit cards are much less strict than traditional cards. The minimum deposit for a secured credit card will vary by card, but you should expect to pay at least $49.
With secured credit cards, individuals with poor credit have the opportunity to improve their credit while working on establishing strong financial habits.
What is a secured credit card deposit?
You might question why you’d need to make an upfront deposit to obtain a secured credit card. The “secured” in secured credit cards means that the cardholder must deposit a specific amount with the card issuer to open a credit card account. The security deposit is used by the card issuer as collateral if a cardholder defaults on their credit card balance. The deposit is typically equal to the card’s credit limit. You can increase your credit limit by paying a larger security deposit.
How much do secured credit card deposits cost?
Secured credit card deposit minimums typically start at around $200 (there are cards that require lower deposits), and some maximum deposit limits can be as high as $5,000. How much you deposit will depend on your specific financial situation and the card you apply for. The following is a list of a few of the top secured credit cards and their minimum and maximum deposit limits:
|Card||Minimum deposit||Maximum deposit|
|Discover it® Secured Credit Card||$200||$2,500|
|Capital One Platinum Secured Credit Card||$49||$1,000|
|Self – Credit Builder Account with Secured Visa® Credit Card||(See Terms)||(See terms)|
|Citi® Secured Mastercard®||$200||$2,500|
|Capital One Quicksilver Secured Cash Rewards Credit Card||$200||$1,000 to $3,000 based on creditworthiness|
How much should you put down for a secured credit card?
The amount you should deposit for your secured credit card depends on your finances. If you can only afford the minimum, then you should only deposit that amount. Many of the best secured credit cards allow cardholders to choose their deposit amount within a specific range. If you have the means, depositing a larger amount will give you access to a higher credit limit, making your card easier to manage.
For example, if you deposit $200 and spend $150 on a single trip to the grocery store, you will only have access to $50 until you pay your card balance. If you use the card regularly, you may have to make several credit card payments during the month to continue using the card. On the other hand, if you deposit a larger amount, you have more wiggle room.
A larger deposit may also help you boost your credit score by keeping your credit utilization ratio low. Credit utilization is one of the major determining factors in your credit score, and it’s best to keep it under 30 percent if possible. So if your credit card limit is $500, then you need to keep your credit card balance at or below $150 for your credit utilization ratio to be under 30 percent.
A larger deposit — and therefore a higher credit limit — will allow you to carry larger balances while keeping your credit utilization ratio at or below 30 percent.
However, there are cases where smaller deposits may be best, since they give you more control over your cash. If you need access to cash in case of an emergency, for example, it may be difficult to access the cash you used for the security deposit. You’ll likely have to cancel the card to get your money back.
If you deposit a smaller amount, you won’t have the convenience of a larger credit limit — but you’ll have access to your cash to do things, like build an emergency fund — and you’ll still be able to build your credit with the benefits of a secured card.
When do you pay a secured credit card deposit?
Paying your security deposit is typically the last step in the application process for a secured credit card. On the application, you will provide personal information such as your full name, date of birth, address, Social Security number, employment information and income. Then, you will need to select how high you want your credit limit to be. Once you establish what your deposit amount is, you will then be prompted to pay the deposit online with a debit card or bank account. Because you are paying the deposit during the application process, you’ll most likely be approved right away.
Can you get your security deposit back?
Your deposit is refundable, but when exactly do you get it back? Opening a secured credit card requires a deposit in order to gain access to a line of credit, and the issuer will keep the deposit as long as the secured credit card account stays open.
In some cases, you can get your funds back without closing the account by upgrading your secured credit card to an unsecured card, at which time the deposit will be returned to you. In any other case, you’ll have to pay off your balance and close your secured credit card account in order to get your deposit back.
Even if you aren’t necessarily using your secured credit card, it is always a good idea to keep the account open in order to keep your credit utilization in good standing. Closing a credit card can actually hurt your credit score because you are increasing your credit utilization ratio by reducing the total amount of credit available to you.
If you definitely aren’t interested in holding on to your secured credit card, and that is okay, consider transitioning to an unsecured credit card with the same issuer. As we mentioned briefly, some issuers will automatically offer you an upgrade after you’ve made consistent on-time payments on your secured card. Others will wait for you to request an upgrade.
The bottom line
A secured credit card is a great way to invest in your financial future, no matter how much you use for a deposit. Although saving for the deposit needed for a secured card can be difficult, building your savings is certainly not impossible, and it’s definitely worth it. Ultimately obtaining a secured card is one of the smartest ways to build your credit.