HomeCredit CardsWhat is a Secured Credit Card and How Does it Work?

What is a Secured Credit Card and How Does it Work?

A secured card is a credit card funded by a security deposit which is determined by the amount that you choose. This initial deposit is the amount that will become your credit limit once the account is officially opened.

A secured credit card is an instrument that provides those with bad or risky financial behavior an option to rebuild their credit. They can give you a way to balance out any negative credit situations by allowing you to climb the credit ladder on your own terms. However, there are some things that differ about secured cards versus a typical card.

Since many people in the poor or bad credit categories haven’t proven themselves with lenders, they are considered a risky bet when it comes to banks and credit card companies. Therefore, the deposit is a guarantee that if the bill isn’t paid, the balance will be recouped from those funds. 

The minimum required upfront deposit depends on the terms and conditions set by the card issuer, but most cards have a requirement of $200 to $300 initially with the ability to increase at a later date.

How Does A Secured Card Work?

Once your initial deposit is paid, using a secured card is very similar to a regular card except for a few key differences:

  • The deposit must be paid in full to unlock the agreed-upon credit limit
  • Not all secured cards report to each credit bureau
  • A secured card keeps you from going over your available credit

These days you can practically get qualified for a secured card anywhere however, it’s important to check out the financial terms closely as annual fees and approval fees can eat into your initial balance.

Secured vs Unsecured Card

While most secured cards are geared towards those with less than optimal credit, they also provide you a route to increase your available credit quickly.

The maximum balances on secured cards can go as high as $5,000 if you can afford the payments. This makes them a highly recommended avenue to establish credit or climb the credit score ladder.

On the other hand, an unsecured card comes with a preset credit limit based on your credit score and can have a high starting limit if you have a history of responsible usage. In addition, unsecured cards come with perks such as cash back, rewards, lower annual percentage rates, and lower membership fees. 

Building Credit with a Secured Credit Card

Building credit with a secured card is done in the traditional sense as you would adhere to the same standards as an unsecured card. Your new account is reported to the credit bureaus within 30 to 60 days of its opening.

Having healthy credit habits like on-time payment history, staying under the credit limit, and keeping a low debt to credit ratio can improve your chances of getting approved for an unsecured card within about six months to a year of usage.

Once you establish yourself as responsible when it comes to building credit offers will come flowing in from many of the credit card companies. Checking your credit score every so often will let you know when you have a good chance of being approved for a regular credit card.

Pros and Cons of Secured Credit Cards

Using a secured credit card has a variety of advantages that will help you get off to a great start and improve your credit profile in the process. However, having a secured card can also prove to have some downsides that won’t occur with unsecured credit cards. 


  • The credit limit is guaranteed by an upfront cash deposit based on what you can afford
  • Secured cards have the same functionality as an unsecured card
  • Great for those who need to build their credit history


  • Interest rates and fees are much higher than with an unsecured card
  • Credit building with a secured card can take six to twelve months
  • Initial fees can affect available credit upon account opening

Who Should Consider a Secured Card?

Secured credit cards were designed for consumers who don’t have the best track record when it comes to managing credit affairs. If you find yourself in one of the following categories, then a secured card may be a viable option:

  • Facing a low credit score 
  • No established credit history
  • Credit blemishes such as charge offs, collections, or bankruptcies

Over time a secured card can turn into a tool for improving your financial standing and getting approved for unsecured cards, which come with many perks and benefits. 

Frequently Asked Questions

How Fast Does a Secured Card Build Credit?

The average time frame to build credit with a secured card is about six months to a year. During this time you will be focused on balancing your payments, getting a handle on spending, and other habits which demonstrate to potential lenders that you are ready for another type of card. 

Do Secured Cards Help Build Credit?

Secured cards build credit in a variety of ways and are often much faster than a traditional card.  Some ways that you can use a secured card to build your credit score are:

  • Aim for spending less than 10 percent to 30 percent of your limit each month
  • Maintain regular usage over time
  • Ensure that payments are made in full by the cards original due date

How Can I Qualify to Upgrade to an Unsecured Card?

Qualifying for an upgrade from a secured card to an unsecured card requires making regular, on-time payments for a period of time. As your score increases, it will show the credit card company that you are using your credit wisely. 

Depending on the credit card company that you have chosen, you could automatically be switched over to an unsecured card after a few months to a year. However, this does also depend on how low your score was when you first opened your card account.


Having a secured credit card is one of the easiest ways to improve your credit. Since your cash determines the amount that is financed, it makes lenders more likely to approve you for a card. Although the cards do contain much higher interest rates and additional fees, they do provide an entry into the world of credit for those who need to get established. After managing your card for some time. You can quickly propel your score to top-tier status.

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