What Is a Secured Credit Card?

A secured credit card functions like a regular credit card but requires a cash deposit as collateral. This deposit typically determines your credit limit. For example, a $300 deposit usually results in a $300 credit limit. The deposit minimizes the lender’s risk, making secured cards easier to qualify for than unsecured credit cards.

Benefits of a Secured Credit Card

1. Helps Build or Rebuild Credit

Secured credit cards report to the three major credit bureaus (Experian, Equifax, and TransUnion), allowing you to establish a positive credit history with responsible use.

2. Easier Approval Than Unsecured Cards

The required deposit reduces the lender's risk, making approval more likely for individuals with low credit scores or no credit history.

3. Potential to Transition to an Unsecured Credit Card

After demonstrating responsible use—such as making on-time payments and maintaining low balances—some issuers may allow you to upgrade to an unsecured credit card and refund your deposit.

4. Improves Payment History

Consistently making on-time payments strengthens your payment history, a significant factor in your credit score.

5. Lowers Credit Utilization Ratio

Keeping your balance below 30% of your credit limit can improve your credit score, as credit utilization is a key component of credit scoring models.

6. Encourages Responsible Financial Habits

The requirement of a deposit encourages responsible spending, helping you develop good credit habits.

7. Functions Like a Regular Credit Card

A secured credit card allows you to shop online, book travel, and make everyday purchases while building your credit.

Secured Credit Card Options

If you're considering a secured credit card, here are a few options to explore:

  • Discover it® Secured Credit Card: Offers cash back rewards and reviews your account after seven months to potentially transition to an unsecured card.

  • Citi® Secured Mastercard®: Designed for individuals with limited or no credit history, with credit limits ranging from $200 to $2,500 based on your security deposit.

  • Capital One Platinum Secured Credit Card: Requires a refundable security deposit, with the opportunity for a higher credit line after making your first five monthly payments on time.

  • OpenSky® Secured Visa® Credit Card: No credit check required to apply, making it accessible for those looking to build credit.

  • U.S. Bank Secured Visa® Credit Card: Helps build or re-establish credit, with payments reported to all three major credit bureaus.

Impact of Secured Credit Cards on Your Credit Score

Using a secured credit card responsibly can positively impact your credit score by:

  • Improving Payment History: On-time payments build a strong payment history, crucial for a good credit score.

  • Extending Credit History Length: Maintaining the account over time contributes to a longer credit history.

  • Reducing Credit Utilization: Keeping balances low relative to your credit limit benefits your credit utilization ratio.

  • Enhancing Credit Opportunities: Responsible use can lead to eligibility for loans, mortgages, and unsecured credit cards with better terms.