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This article was last updated Sep 06, 2018. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.
New to credit? You may have come across secured credit cards in your search for a credit card, but are wondering how they differ from unsecured credit cards and if they’re the right choice for you. In short, they’re quite similar — except that secured credit cards require something called a security deposit, which we’ll explain in more detail in the next section.
In this post, we’ll help you understand what a secured credit card is, how it differs from an unsecured card and how you can use it to build credit.
What is a secured credit card?
A secured card is nearly identical to a traditional, unsecured card, but it requires a minimum security deposit. The amount you’re required to deposit is typically $200, but it can be as low as $49 and upwards of $250. Your security deposit becomes your line of credit, so if you deposit $200, your credit limit will be $200, depending on the issuer.
If you want a higher credit limit, you can always deposit more money. Some cards even provide credit limit increases without requiring an additional deposit, if you have good payment history for several consecutive months.
For the most part, you can receive your deposit back if you pay your bill in full and close your account (which we recommend avoiding) or if you’re upgraded to an unsecured card. Most secured cards from major banking institutions, like Discover, Citi and Capital One, conveniently provide the chance to be transitioned from your secured card to an unsecured card when they deem you creditworthy. However, if you open a card with a lesser known bank, you may not be so lucky and might need to submit a separate application for an unsecured card.
Secured credit card vs. unsecured credit card
The only real difference between a secured card and an unsecured card is that a secured card requires a deposit. Since the deposit acts as collateral if you default on your account, lenders typically have lower credit requirements for secured cards. On the other hand, with unsecured cards, lenders are taking risk when they approve you, so they tend to require fair, good or excellent credit. There are unsecured cards for bad credit, but those often have high fees and we recommend sticking to a secured card until your credit improves.
Tip: Check out our guide on the best unsecured cards for limited credit histories.
How a secured credit card works
You can use your secured card just like you’d use a regular credit card. After you make your minimum security deposit, you’ll be able to access your credit limit and starting using your card. You can use your card for everyday purchases, online transactions and bills — pretty much anything that accepts a credit card.
A secured card incurs interest on balances that remain after your bill’s due date, so be sure you make timely payments that cover your entire balance. This will help you build a good credit history, and may even allow you to receive a higher credit limit over time — of course, this depends on if you have a card that offers credit limit increases with consecutive on-time payments.
There are secured cards that have annual fees up to $49 and the cards with fees tend to be from lesser-known banks. We recommend sticking to secured cards from major banks with no annual fees, which can be found here.
How to use a secured card to build credit
A secured card can be a great asset on your journey to building credit. The actions you take with your secured card are most often reported to the three credit bureaus — TransUnion, Equifax, and Experian — so make sure you practice responsible credit behavior. We recommend following the tips below that can help you work towards a good or excellent credit score:
Pay on time and in full. Payment history is the most important factor of your credit score making up 35%. Therefore it’s key to always make on time payments and to pay in full each billing cycle. This not only reports good credit behavior to the credit bureaus, but also prevents you from incurring late fees and racking up interest charges.
Tip: Set up autopay or payment reminders so you don’t miss a payment
Use the card each month, and only charge a small amount. Another important factor of your credit score is utilization, or amounts owed. This is the total amount of your credit limit you use divided by your total credit limit. It’s generally recommend to keep utilization below 30%. For example, if you spend $50 a month on a secured card with a $200 credit limit, your utilization would be 25% — which is ideal.
Tip: Add a small recurring charge, like Netflix or Spotify, to your account.
Read our guide on how to build credit with a secured card.
Recommended secured cards
There are plenty of secured cards available, but we recommend the following three cards from major issuers that provide reasonable security deposits at a $0 annual fee:
2% cash back at Gas stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases
Credit line will equal your security deposit of $200 or more*
No annual fee, no late fee on your first late payment. No penalty APR*
- No Annual Fee, earn cash back, and build your credit with responsible use.
- It's a real credit card. You can build a credit history with the three major credit bureaus. Generally, debit and prepaid cards can't help you build a credit history.
- Establish your credit line by providing a refundable security deposit of at least $200 after being approved. Bank information must be provided when submitting your deposit.
- Automatic reviews starting at 8 months to see if we can transition you to an unsecured line of credit and return your deposit.
- Earn 2% cash back at Gas stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically.
- Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score
- INTRO OFFER: We automatically match all the cash back you've earned at the end of your first year.
- Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
- See Rates & Fees
See additional details for Discover it® Secured
Build Credit When Used Responsibly
$49, $99, or $200
- No annual fee, and all the credit building benefits with responsible card use
- Unlike a prepaid card, it builds credit when used responsibly, with regular reporting to the 3 major credit bureaus
- Access to an authorized bank account is required to make your $49, $99 or $200 refundable security deposit
- Make the minimum required security deposit and you'll get an initial credit line of $200. Plus, deposit more money before your account opens to get a higher credit line
- Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
- Easily manage your account 24/7 with online access, by phone or using our mobile app
- It's a credit card accepted at millions of locations worldwide
See additional details for Capital One® Secured Mastercard®
Monthly reporting to the three major credit bureaus
Auto Pay can help you stay on top of your bill
Use your card anywhere that accepts Mastercard®
- The Citi® Secured Mastercard® is a no annual fee credit card that helps you build your credit when used responsibly.
- Unlike a debit card, it helps build your credit history with monthly reporting to all 3 major credit bureaus. Once available, you will also have free access to your FICO score online.
- Use your card anywhere Mastercard® is accepted — worldwide.
- A security deposit is required. Once approved, your credit limit will be equal to your security deposit (minimum of $200).
- Get help staying on track with Auto Pay and account alerts.
- With Flexible Payment Due Dates, you can choose any available due date in the beginning, middle or end of the month.
- Manage your account 24/7 online, by phone, or in our mobile app.
- The standard variable APR for Citi Flex Plan is 23.99%. Citi Flex Plan offers are made available at Citi's discretion
See additional details for Citi® Secured Mastercard®
More info: Read our roundup of the best secured cards.