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Secured cards offer many of the same benefits of traditional credit cards, but are typically easier to qualify for if your credit history is non-existent or poor.
If you’re new to credit or are determined to rebuild a previously damaged credit history, a secured card might be just what you need to get the ball rolling. But first, it’s important to know just how secured cards differ from unsecured cards, who these cards are good for, and how to transition from a secured to an unsecured card.
What is a secured card?
A secured card works similarly to a regular unsecured credit card, with one major difference. Instead of a lender granting you a “free” credit line from which to borrow against, secured cardholders are required to supply a security deposit that serves as the credit line. The deposit acts as collateral for your creditor in case you don’t repay charges.
For example, if you deposit $200, you’ll receive a $200 credit limit. If you want a $300 credit limit, you’ll need to deposit $300. The deposit is refundable if you pay off your balance in full and close your account, or if you’re transitioned to an unsecured card. Know that some secured cards offer higher lines of credit beyond your security deposit, and that others allow you to deposit several thousand dollars as a security deposit/credit line.
Just like a regular, unsecured card, any balances you carry on a secured card incur interest charges. Other fees may also apply, such a late payment fees, penalty interest rates and annual fees. However, there are many secured cards with no annual fees.
Unlike prepaid cards and debit cards, the actions you take with a secured card are often reported to the three credit bureaus — Experian, Equifax and TransUnion. As long as you practice responsible credit behavior, you can work towards building a good credit score with a secured card.
Interest rate differences between secured, unsecured cards
Another aspect where secured cards differ from unsecured cards is in the APRs offered to cardholders. Interest rates for unsecured cards are often offered at a range (e.g. 14.99% to 23.99%), depending on an applicant’s creditworthiness. So, if you have a great score, you most likely (but not always) will qualify for an unsecured card’s lowest APR. In contrast, secured cardholders are typically offered just one flat interest rate that is typically pretty high. For example, the Discover it® Secured has a 25.24% Variable APR, while the comparable, unsecured Discover it® chrome offers an APR range: 14.24% - 25.24% Variable.
Read more about the difference between secured and unsecured credit cards.
Who can open a secured card?
Secured cards have pretty lenient requirements for approval compared to unsecured cards, with many boasting availability for people with no credit or bad credit. However, like an unsecured card, various factors are considered during the application process, such as income, employment status and monthly housing or rent payments.
Just know, many unsecured cards that boast instant decisions for people with no credit or bad credit may come with poor terms. They often charge above-average interest rates, annual fees and various other fees. Make sure you read the terms and conditions before you apply so you’re aware of any fees and interest you may be charged.
How to transition to an unsecured card
The process for transitioning from a secured card to an unsecured card varies by card issuer. Some issuers provide a clear path to graduating to an unsecured card. For example, Discover automatically reviews secured card accounts starting at eight months from account opening to see if you qualify to receive your deposit back — all while still benefiting from use of your card.
Other card issuers may require you to apply for an unsecured card and close your secured card once your credit score has risen to a decent number. Prior to closing your account, pay off your balance so you can receive your security deposit back.
Beware that closing a card can hurt your credit score, especially if it is your only credit product. Before closing a secured card, ask your card issuer if you can be converted to an unsecured card. If that’s not an option, make sure you apply and are approved for a new credit card before closing your secured card.
Popular secured cards
There are numerous secured cards available, but here are our top picks because they come with no annual fee and reasonable security deposits:
2% cash back at gas stations and restaurants on up to $1,000 in combined purchases every quarter, automatically. 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 from $200-$2500 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.
- 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases every quarter, automatically. Plus, earn unlimited 1% cash back on all other purchases.
- Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score
- We automatically match all the cash back you’ve earned at the end of your first year.
- Receive FREE Social Security number alerts - Discover will monitor thousands of risky websites when you sign up.
- 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
- You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness
- 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®
- No Annual Fee, and unlike a prepaid card, it helps build credit history with monthly notifications to the credit bureaus
- A security deposit is required for this product (minimum $200)
- Pay your bill on time every month to avoid damaging your credit. Citi can help keep you on track with Auto Pay, online Bill Pay and alerts.
- Use the card anywhere Mastercard® is accepted — worldwide
See additional details for Citi® Secured Mastercard®
Check out our guide on the best secured cards.
Secured cards can be a great tool to build a credit score if handled responsibly. Those offered by major card issuers are the most likely to report your payment activity to the credit bureaus, but it’s always best to call and confirm that before you apply.