What Is a Secured Credit Card and How Does It Work?
Key takeaways
- Secured credit cards operate very similarly to a traditional credit card but require a security deposit that acts as your line of credit.
- Secured cards are often easier to get approved for and can be a great way to build credit for those new to credit building or people with bad credit.
- The Discover it® Secured Credit Card is one of the best secured credit cards for its $0 annual fee and rewards rate.
How does a secured credit card work?
A secured credit card works just like a regular credit card, allowing you to make purchases and pay them off at a later date while helping you build a credit history. However, unlike a regular credit card, a secured card requires a refundable cash deposit upfront to open your account. The deposit acts as collateral and typically determines the amount of your line of credit. For example, if you put down $200 as your security deposit, your credit limit will be $200.
Secured credit cards may be an ideal option if you have poor or limited credit, since they can be easy to get. With responsible use, they can help you establish or improve your credit, and you may graduate to an unsecured credit card eventually. If this occurs, or if you pay off your balance in full and close your account, you’ll get your security deposit back.
Most well-known banks and credit unions issue secured credit cards, and you can use them to make purchases wherever credit cards are accepted.
Secured vs. unsecured credit card
The main difference between a secured card and an unsecured card is that unsecured credit cards don’t require a security deposit. In addition, they base your credit limit on your creditworthiness, while a secured card bases your credit limit on your security deposit.
Secured cards are often easier to get approved for than unsecured cards since the security deposit creates less risk for a lender. However, unsecured cards may offer more robust rewards programs and benefits, as well as lower interest rates.
Choosing between a secured card and an unsecured card ultimately depends on your credit. Secured cards are a much better option if you have limited or bad credit. There are unsecured cards available if you have bad credit, but you should try to avoid those if possible. Unsecured cards for bad credit often come with confusing terms and extra fees, like setup fees and monthly maintenance fees.
| Secured credit cards | Unsecured credit cards | |
|---|---|---|
| Report activity to credit bureaus | ||
| Can earn rewards | ||
| Require a security deposit | ||
| Credit limit based on your deposit (usually) | ||
| Credit limit based on creditworthiness | ||
| Can apply with poor or no credit | ||
| May have higher interest rates | ||
| May charge an annual fee |
Tip: If you’re worried about paying a deposit, choose a secured credit card with a low deposit.
- The Capital One Platinum Secured Credit Card allows you to qualify for a deposit as low as $49 to secure at least a $200 initial credit line based on your credit score.
- The Secured Self Visa® Credit Card doesn’t require a hard credit check and offers a minimum deposit of only $100 or at least $25 a month. There is a $0 intro offer for the first year, then $25 (offer valid for new customers only). Variable APR of 27.99%.
- The Amazon Secured Card has a solid rewards rate on Amazon purchases, a $0 annual fee and a minimum security deposit of only $100.
Do secured credit cards build credit?
Secured credit cards are one of the best tools to help you build credit. They’re easier for applicants with poor or limited credit to get. Plus, they report your account and payment activity to the three major credit bureaus — Equifax, Experian and TransUnion. Your credit score is then generated using the information from your report.
You can use a secured card to demonstrate responsible credit use over time and eventually qualify for an unsecured card with more benefits and perks. Here are a few tips to help you build credit with a secured credit card:
- Pay on time.
- Keep utilization low.
- Avoid applying for too many cards.
- Check your credit report.
How quickly will a secured credit card build your credit?
The timeline to repair your credit with a secured credit card can vary based on several factors. To rebuild your credit, you need to use the card responsibly — which includes making payments in full and on time and keeping your credit utilization ratio low.
If you do that consistently, your credit should improve slightly every month. Some secured cards will upgrade you to an unsecured credit card after seven months of responsible usage. This often means you can qualify for a higher credit limit, which can help you boost your credit score quicker.
You may start to qualify for better credit cards after you’ve been upgraded. Depending on how low your credit score was to begin with, this can take around seven months or sometimes over a year.
Pros and cons of secured credit cards
- Accessible with poor or fair credit
- Many have no annual fee
- Better terms than unsecured cards for bad credit
- Security deposit is refundable
- Accepted in the same places as unsecured credit cards
- Serves as an excellent credit building tool
- Requires an upfront security deposit
- Few additional perks
- Can have high APRs
Which banks offer secured credit cards?
Most major banks and credit unions offer secured credit cards, with the exception of American Express, Chase and Wells Fargo. You’ll receive credit card statements from your issuer like any other credit card and you’ll be able to use your card anywhere the card brand is accepted. If you already have an existing relationship with a bank that offers secured cards, that may be a good place to start because it may boost your approval odds.
Here are the secured credit cards offered by the following banks:
| Bank | Secured cards |
|---|---|
| Bank of America secured credit cards |
|
| Capital Bank secured credit cards | |
| Capital One secured credit cards | → See full list of Capital One credit cards |
| Citi secured credit cards | → See full list of Citi credit cards |
| Discover secured credit cards | → See full list of Discover credit cards |
| Navy Federal Credit Union secured credit cards |
|
| U.S. Bank secured credit cards |
|
What is the best secured credit card?
Best overall secured credit card
The Discover it® Secured Credit Card is our winner for the best secured credit card. It’s one of the best cards available if you have limited / poor credit and are looking for cash back rewards. You’ll earn cash back at gas stations and restaurants, and Discover will match all of the cash back you’ve earned at the end of your first year for new cardholders. Plus, starting at seven months of owning the card, Discover will start conducting monthly account reviews to see if you’re eligible to graduate to an unsecured card and get your deposit back.
Best if you’re looking for a card with a low deposit
Choosing the best secured credit card for you depends on your personal financial situation. And if you’re worried about paying a deposit to own a secured credit card, the Capital One Platinum Secured Credit Card may be the best choice. This card comes with a low security deposit. Depending on your credit score, you can qualify for a deposit as low as $49 to secure at least a $200 initial credit line.
Best if you’re looking for a card with no credit check
If you’re worried about getting approved for a secured credit card, the opensky® Plus Secured Visa® Credit Card may work best for you. There’s no credit check to be approved for the card, meaning you may be able to qualify even if you’ve been denied for other cards. It has a $0 annual fee but a higher minimum security deposit of $300.
→ See our full list of the best secured credit cards.
How to apply for a secured credit card
You’ll apply for a secured credit card the same way you would any other credit card.
- Once you’ve picked the secured credit card that’s best for you, go to the issuer’s website and complete the application. You may also be able to apply over the phone, in the bank branch or through the mail.
- You’ll likely need to provide personal and financial information, like your name, date of birth, Social Security number, employment status, annual income, housing costs, email address and phone number.
- Read the card’s terms and conditions carefully. Some credit cards for bad credit, including secured cards, may come with additional fees that aren’t advertised upfront.
- Pay your security deposit. You can pay the minimum deposit, but putting down more than that can likely help you increase your credit score faster. This can decrease your credit utilization ratio, which is the amount of credit you’ve used compared to your total credit available.
How to upgrade from a secured credit card
- Choose a secured card with a path to upgrade.
If an issuer offers the chance to graduate to an unsecured credit card, it’s often noted on the card’s main page along with the timeline and requirements. If it’s not advertised on the card’s site, you should call the issuer to see if upgrading is an option before you apply. - Find out which unsecured card you will be upgraded to.
Looking at your upgrade options can help you decide which secured card to apply for. For example, the Discover it® Secured Credit Card upgrades to the Discover it® Chrome, and the Capital One Platinum Secured Credit Card upgrades to the Capital One Platinum Credit Card. You might opt for the Discover it® Secured Credit Card if you want to upgrade to a cash back credit card instead of a card that doesn’t earn rewards. - Once you have your secured credit card, use the card responsibly.
It will typically take at least six months before your issuer considers you for an upgrade — some issuers may take even longer. In the meantime, be sure to make regular purchases on the card and pay them off by the due date. - If you have not received an upgrade after several months of responsible use, call your issuer to request an upgrade.
Even if you’re not sure of your issuer’s timeline for a card upgrade, it doesn’t hurt to reach out and ask if you can graduate.
Should I get a secured credit card?
Secured credit cards are one of the best options if you have poor or limited credit and are looking to build your credit score. But just like any other credit card, using your card responsibly and making on time payments are key to building and maintaining a good credit score. Once your credit gets to a good place, you should be able to upgrade to an unsecured card with additional features like, a sign-up bonus, higher rewards rate and other benefits.
Methodology: How we chose the best secured credit cards
We use an objective rating and ranking system that compares features across a large set of credit cards (over 200 of them from over 50 issuers). We use calculations to estimate the value of each card for the average cardholder, based on LendingTree and U.S. Bureau of Labor Statistics.
For credit-building cards in particular, we devote a large part of the score to features that help build credit — we want to help you locate cards that don’t cost a lot to own and provide help so you can upgrade to better card offers.
We calculate how much the average cardholder can save with the card on a yearly basis. If it’s a rewards card, we use U.S. Bureau of Labor Statistics data and $300 in monthly spending (the typical starting credit limit for an introductory card) to calculate how much the average cardholder can earn in rewards. We then subtract fees — including annual fees and maintenance fees — from this amount.
We give points for features that help build credit, including reports to all three credit bureaus, regular account reviews for card upgrades and free credit score access. We take away points for features that can be costly to cardholders trying to build credit, such as security deposits, penalty APRs and late payment fees.
Note that our ratings are a starting point for comparing and choosing the best credit card for building credit. However, your needs may be different from the average cardholder. You should consider the amount you’re likely to spend in a card’s bonus categories and which benefits you value to choose the best card for you.
For Capital One products listed on this page, some of the benefits may be provided by Visa® or Mastercard® and may vary by product. See the respective Guide to Benefits for details, as terms and exclusions apply
The information related to the Amazon Secured Card, Bank of America® Customized Cash Rewards Secured Credit Card, Bank of America® Unlimited Cash Rewards Secured Credit Card, BankAmericard® Secured Credit Card, Citi® Secured Mastercard® and U.S. Bank Altitude Go Visa Secured Card has been independently collected by LendingTree and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply.
The content above is not provided by any issuer. Any opinions expressed are those of LendingTree alone and have not been reviewed, approved, or otherwise endorsed by any issuer. The offers and/or promotions mentioned above may have changed, expired, or are no longer available. Check the issuer's website for more details.
