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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. This form of credit requires a cash deposit to secure a line of credit.

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.

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.

Secured credit card payments are reported to the three credit bureaus: Experian, Equifax and TransUnion. Double-check with the issuing company to make sure it will be reporting your payment history to the three main credit bureaus.

How do secured credit cards 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. 

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. A secured credit card can be used in places where credit cards are accepted like gas stations.

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. Those who have a good or excellent credit score have better chances to qualify for this type of credit card.

It should be noted that changing from secured to unsecured credit cards might take around 12 to 18 months. It all depends on how well you manage your payments and your starting score.

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.

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 16.28% (as of January 2022) Often over 20%
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

Secured credit cards vs. prepaid debit cards

It is important to not confuse a secured credit card with a prepaid debit card. One of the differences is that prepaid cards do not generate credit scores. If that’s what you are looking for, a prepaid debit card is not an option.

With secured credit cards, you borrow and pay later. In contrast, prepaid debit cards require you to deposit before spending. Why do you need to deposit before spending with a prepaid debit card? The reason is that prepaid debit cards are not linked to your bank account. 

Many can get confused since secured credit cards require a deposit. You must pay your balance on or before due dates so that your credit score does not get affected by a secured credit card. 

Prepaid debit cards Secured credit cards
Minimum credit score to qualify N/A Available for scores below 579
Deposit required? Yes (before spending) Yes
Average APR N/A Often over 20%
Annual fee charged? Variable Usually
Helps you build credit by reporting to credit bureaus No Usually
Rewards available? Depends on the issuer Usually no

How to maximize your secured credit card

Recommendations to keep your score in the best shape possible:

  1. Confirm that the bank reports to the three main bureaus
  2. Keep your credit utilization rate below 30 percent
  3. Pay balance in full
  4. Don’t overspend
  5. Don’t miss a payment

The bottom line

Secured credit cards can be worth a shot to build or rebuild your credit score. It gives you a chance to prove responsibility by applying good habits. Good management of a secured credit card helps to increase your credit score and lenders’ trust.

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.
Reviewed by
Associate Editor