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How do secured credit cards work?

These cards can help you eventually graduate to an unsecured card.

Having a good credit history is paramount when it comes to larger commitments like renting an apartment or taking out a mortgage. But building credit can be difficult for those without the credit score necessary to obtain a credit card in the first place. In this event, a secured credit card offers an accessible path to build better credit and qualify for the credit card you want.

The idea behind a secured credit card is that you need to put down a secured deposit as collateral, which then becomes your credit line. Depending on the amount you deposit, you can get a credit line between $300 and $5,000. But to get a chance to deposit higher amounts, you need to use your card responsibly for at least six months. With responsible card use, you can build your credit over time and eventually graduate to an unsecured card.

How do these cards work?

Once you find the right secured card for your financial situation, here’s how it works:

  1. Make a security deposit.
    Before you can use your account, you must make a secured deposit. This serves as a “collateral” that your card issuer can collect on if you default on payments.
  2. Control your line of credit.
    When you open a secured card, the money you deposit as collateral — usually between $200 and $5,000 — often becomes your line of credit. After a few months of on-time payments, you may be eligible to increase your limit. On rare occasions, your credit limit might be higher than your security deposit.
  3. Make on-time payments.
    Most secured cards report your activity to all three credit bureaus — Experian, Equifax and TransUnion. Make sure to always pay your balance on time and you should see a boost in your credit score in no time. Many secured cards also offer monthly FICO score checks so you can track your progress.
  4. Don’t expect cool features.
    Unlike unsecured cards, secured cards rarely offer additional perks such as cash back or travel insurance. What’s more, interest rates and other fees on secured cards can often be high.
  5. Be patient.
    Using your card regularly and responsibly can help your credit score increase. A 670 score is considered good credit and can help you qualify for an unsecured card. Some secured cards offer opportunities for graduating to an unsecured version of the card provided you show financial responsibility over a certain period of time.

Using a secured card effectively

Here’s how to use a secured card to effectively build your credit:

  • Pay your balance on time. And pay it in full. This is the best way to build your credit and potentially graduate to an unsecured card.
  • Don’t max out your credit limit. The chances are you’ll get the minimum credit line of around $300. Maxing out your credit limit could send the wrong signal to other lenders. The recommended utilization ratio for credit-building is less than 30%, but in this case, you can safely go to 50% as long as you always pay off your balance in full before the due date.
  • Put your subscription services on the card. Get your Netflix account or any similar service and automate your payments so you always use your card and always pay off your balance.

Secured credit cards vs unsecured credit cards

The primary difference between a secured card and an unsecured card is that a secured credit card requires a security deposit. This security deposit can range from $50 to more than $200 and acts as collateral for the issuer (and sometimes acts as your maximum credit limit).

It’s a sort of guarantee that if you go belly up on your payments and your account is closed, the issuer is covered for losses. And don’t worry: assuming you used your secured card responsibly, you’ll get your deposit back after you close your account.

Otherwise, secured credit cards are nearly identical to unsecured credit cards in how they function, including how they affect your credit score. Just know that a secured card will typically have a lower credit limit and higher APR than an unsecured card.

Secured credit cards vs prepaid cards

Secured credit cards and prepaid cards may look similar, but they have notable differences. The main difference between the two is:

  • You have to make a deposit for both. But with a prepaid card, the money you spend is actually your deposit. With a secured card, your deposit is held as collateral and you have to pay off your balance before it’s due.
  • Secured cards can help you build credit, while prepaid cards can’t.

Compare secured credit cards

Name Product Filter values Minimum deposit required Purchase APR Annual fee Recommended minimum credit score
Citi® Secured Mastercard®
Starting at $200
22.49% variable
New to credit
A no annual fee secured card for people who are new to credit or have limited credit history.
Self Visa® Credit Card
Starting at $100
21.74% variable
Build your credit with a low minimum security deposit of $100 and no credit score required.
Surge Secured Mastercard®
Starting at $300
19.99% variable
Earn 1% cash back rewards.

Compare up to 4 providers

Is a secured credit card right for me?

Secured credit cards offer an array of benefits for those looking to build a poor credit score or those without any prior credit history whatsoever. However, these cards also come with a few drawbacks that can make them not the right fit for everyone. Check out our secured cards guide to see whether it’s the right choice for you.

Bottom line

If you’re looking for a credit card, but have poor or no credit history, compare secured credit cards that fit your financial needs. Look out for high APRs and fees, spend responsibly and pay your monthly bills on time to build your credit. In time you’ll be able to start applying for a cheaper, unsecured card.

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