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

A secured credit card is a type of credit card that requires a refundable security deposit to open the account. The cardholder typically makes a one-time deposit that acts as collateral for the credit card issuer. It’s a bit like the deposit a landlord holds for an apartment.

A secured credit card can be a great option if you’re trying to build credit, especially if you’re having trouble qualifying for other cards.

What you’ll learn:

• To open a secured credit card account, a cardholder typically makes a one-time refundable security deposit.

• A secured credit card might make sense for people looking to establish or build credit.

• The benefits of secured credit cards include access to a line of credit and the ability to work toward qualifying for an unsecured credit card.

A secured credit card is a line of credit opened with a one-time security deposit. Typically, this deposit is refundable and can be earned back by doing things like making on-time payments and paying more than the minimum. 

The deposit serves as collateral. And because of the deposit, a secured credit card can often be easier to get approved for than a traditional unsecured credit card. And that makes it suitable for people who are trying to build credit.

Secured credit cards work like traditional credit cards, except they require a security deposit. As you use the card, you borrow against a credit line. Then, at the end of each billing cycle, you can pay down—or pay off—your balance. The Consumer Financial Protection Bureau (CFPB) says one way you could avoid interest charges on new purchases is to pay off your balance on time every month.

In some cases, the security deposit may be the same as your secured credit card limit. For example, a $200 deposit might give you a $200 credit limit. But some cards might offer access to more credit. 

With the Capital One Platinum Secured card, an initial security deposit of $49, $99 or $200 (depending on your creditworthiness) can open an account with a credit line of at least $200. Platinum Secured cardholders can raise their credit limits by depositing more than the minimum.

You can use your secured credit card to build credit if:

• You use your card responsibly: Responsible use means taking steps like making on-time payments, keeping credit utilization low, understanding terms and monitoring your credit.

• The issuer reports to a credit bureau: Your card activity needs to be reported to at least one of the three major credit bureaus: Experian®, Equifax® or TransUnion®. Capital One reports secured card accounts to all three bureaus.

The biggest difference between secured credit cards and unsecured credit cards is the security deposit. Without the security deposit to act as collateral, unsecured cards tend to have stricter requirements for approval. 

Rewards like cash back or miles may be limited with secured cards. But not in all cases: The Capital One Quicksilver Secured card offers cardholders 1.5% cash back on every purchase.

Like secured credit cards, prepaid cards and debit cards require you to have funds deposited before you can use them. But prepaid cards are funded by loading money onto the card. And debit cards are usually connected to a checking account.

Plus, unlike secured credit cards, prepaid cards and debit cards may not help you build credit. That’s because activity on those accounts usually isn’t reported to the credit bureaus, according to the CFPB.

A secured card could help you:

• Get experience using a credit card
• Access a line of credit
• Build your credit with responsible use, such as paying your bills on time every month
• Work toward upgrading from a secured card to a traditional card

You might be able to apply online, over the phone or in person. 

At Capital One, you can check whether you’re pre-approved before you apply. Checking won’t affect your credit scores. If you’re approved, you’ll still need to make the security deposit before receiving your card.

A secured credit card is a type of credit card that’s opened with a one-time, refundable deposit. These cards can be helpful tools for people looking to build credit. With responsible use, a secured card could be part of building credit and working toward financial goals. 

Are you new to credit or searching for your next credit card? Capital One can help you:

• Check whether you’re pre-approved with no risk to your credit scores.

• Earn unlimited rewards on every purchase, every day, with a cash back rewards card.

• Explore credit cards you can use to build credit responsibly and earn rewards.

• Monitor your credit score with CreditWise from Capital One. Checking won’t hurt your credit score, and it’s free.