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

When used responsibly, a secured credit card can be a great tool to help you build good credit. But before applying, it may help to understand how secured cards work. Keep reading to learn more about what secured credit cards are and the potential benefits they may offer.

Key takeaways

  • To open a secured credit card account, a cardholder typically makes a one-time refundable security deposit.
  • Secured card credit limits vary. Depending on the issuer, the limit may be the same amount as the deposit or more.
  • A secured credit card may be a good option for people looking to establish or rebuild their credit.

What is a secured credit card?

A secured credit card is a type of credit card that requires a security deposit to open the account. The cardholder typically makes a one-time refundable security deposit that acts as collateral for the credit card issuer.

A secured credit card can be a great option if you’re trying to establish, build or rebuild credit. 

How does a secured credit card work?

When it comes to paying for something, secured cards work the same as other credit cards. 

But to open a secured card account, the credit card issuer requires a security deposit. The issuer holds your deposit while you use the card, similar to a landlord holding the security deposit for an apartment. With a secured card, you may be able to earn the deposit back by doing things like making on-time payments and paying more than the minimum.  

What’s the difference between secured cards and unsecured cards?

The biggest difference between secured and unsecured credit cards is the security deposit. Unsecured credit cards don’t require a deposit to open an account. 

Rewards like cash back or miles may also be limited with secured cards. But not in all cases. Take the Quicksilver Secured Rewards card, which offers cardholders 1.5% cash back on every purchase.

Sometimes secured card credit limits are the same amount as the security deposit. But that’s not always the case. Capital One offers secured cards with credit limits that are higher than the initial deposit. Depending on the applicant’s credit history, Capital One may extend a credit line of $200 with a $49 or $99 security deposit. You can also raise your initial credit line by depositing more than the minimum.

An illustration of the Capital One Platinum Secured card and the Capital One Quicksilver Secured Rewards card, along with each card’s deposit requirements. 

How to apply for a secured credit card

The process of applying for a secured credit card varies by credit card issuer. But here’s how applying for a secured card may work:

1. Get approved for a secured card

It may help to learn more about how to apply for a credit card. You could also check whether you’re pre-approved for a card before you apply. Pre-approval is quick and secure. And checking for pre-approved card offers won’t hurt your credit score.

As with any credit card, getting approved for a secured card isn’t guaranteed. Each credit card issuer has its own policies and qualifications. Aside from a security deposit, there may be additional requirements based on creditworthiness. And before you apply, be sure to look at things like the card’s annual percentage rate and fees.

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2. Make your deposit

Deposit requirements can vary. Some card issuers allow you to fund your deposit over a period of time. Others may require an upfront deposit. 

Deposit amounts can vary too. In some cases, the deposit may be the same as your line of credit. For example, a $200 deposit might give you a $200 credit limit. 

But some cards, like the Capital One Platinum Secured card, might provide a credit limit that’s higher than the amount of the security deposit. With Platinum Secured, an initial security deposit of $49, $99 or $200, depending on your credit history, can open an account with a credit line of $200. Platinum Secured also lets cardholders raise their credit limit by depositing more than the minimum.

An animated illustration of dollar bills dropping into a bank building to represent funding a secured card deposit.

3. Start using your secured card

Once you’ve been approved for a secured credit card and made your deposit, you can use the card to make purchases in person or online, just like with a traditional unsecured credit card. Many secured cards look like typical credit cards. So chances are no one but you will know you’re using a secured card.

If your goal is to build credit, it’s important to use your credit card responsibly. That means doing things like making on-time payments and keeping your balance low.

Potential benefits of secured credit cards

There are plenty of advantages to using secured credit cards. A secured card could help you:

  • Gain experience using a credit card
  • Access a line of credit when you need it
  • Build your credit with responsible use, like paying your bill on time every month
  • Work toward qualifying for an unsecured credit card 

Tips for using a secured credit card to build credit

When it comes to using a secured card, credit-building tips are similar to those for an unsecured credit card. Here are a few ways to help set yourself up for success: 

  • Understand your deposit: Make sure you’re able to fully fund your deposit within the time frame required by the card issuer. If you don’t fund the deposit in time, there’s a chance the lender may close your account.
  • Keep track of your spending and statements: Your credit card may be declined if you exceed your credit limit. And if you’re paying interest, you could end up owing more than your initial deposit. Paying your statement balance in full and on time each month can help you avoid interest charges, late fees and other penalties.
  • Use a budget: If you only use the card for a few fixed purchases a month, it may be easier to stick to a budget and stay within your credit limit. It could help you get used to using a credit card. 
  • Choose a card issuer that reports your credit activity: Some credit card issuers may not report secured credit card accounts. If you’re looking to build your credit by responsibly using a secured card, make sure your issuer reports to at least one of the three major credit bureaus: Experian®, Equifax® or TransUnion®. Capital One reports secured card accounts to all three bureaus.

Check out this guide to building credit with a secured card for more tips.

Secured credit card refunds

The deposit on a secured credit card is usually refundable. But card issuers have their own policies for when and how refunds are given.

Can I get my deposit back on a secured credit card?

If you’re a Capital One cardholder, you could get your security deposit back in one of two ways. You can earn your deposit back as a statement credit by using your card responsibly. Or Capital One may refund your deposit when you close your account and pay your balance in full. Before closing your account, be sure to understand how closing a secured credit card could affect your credit.

An animated illustration of a phone screen showing how a security deposit can be returned as a statement credit. 

Secured credit card FAQ

Learn more about secured credit cards with these frequently asked questions:

Some credit card issuers may allow you to upgrade from a secured card to a traditional card without closing your original line of credit. They may even return your deposit. Check with your credit card issuer to understand what’s possible and how your account will be treated if you transition to a traditional card.

With a Capital One secured card, you’ll be notified that your card has been upgraded to an unsecured card if you become eligible. 

Secured credit cards are lines of credit opened with a one-time refundable security deposit. Prepaid cards are pre-funded by loading money onto the card. And debit cards are usually connected to a checking account.

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 credit bureaus, according to the Consumer Financial Protection Bureau. Prepaid cards may also lack many of the security features of a credit or debit card.

Secured credit cards in a nutshell

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 establish, build or rebuild their credit. 

Building good credit takes time. But with responsible use, a secured card could be part of helping you build your credit and work toward a better financial future.

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