What is a Secured Credit Card, and how does it work?

Are you a teenager trying to try your luck in getting your first credit card? Or are you someone with a bad credit report looking for a way to build your credit report?

No matter who you are, what is the main purpose, you can always start by getting a secured credit card.

So, let us talk about what is a secured credit card, and how does it work in detail. We will be covering all the basic points which you must know before you apply for a secured credit card.

What is a secured credit card?

A secured credit card is a card that is already backed by a cash deposit. It means that when you open your account, you need to deposit some money to use it later. E.g., if you are depositing $500 at the time of opening the account, you will be given a limit of $500 only.

For getting a secured credit card, you do not need any credit history since you are going to deposit the amount in advance, and hence, if you are not able to pay the bill, the issues can easily take the money from your deposit.

It will also reduce the risk of the credit card issuer since they are issuing the credit card to someone who has either no credit history or a bad one.

If you are consistent and on time in paying your credit card bills every month, you will be given the deposit amount of $500 back. However, for this, you need to be consistent in paying the bills on time.

If you act responsibly, you can also improve your credit history if you have it. In case if you don’t have one, it will give you a chance to build it.

Many secured credit cards will also give you an offer to upgrade your account to an unsecured card.

In simple words, they will give you a credit card where you do not need to deposit any amount, and it will be based on your credit history. Also, the deposit amount will be refunded to you.

There is no such minimum or maximum amount of deposit as it may vary according to the bank, but you must be prepared with around $200 as a starting deposit for getting a secured credit card.


1. Benefits like an unsecured cardholder: You will also be getting those benefits that an unsecured cardholder gets, such as cell phone protection, identity theft alert, travel insurance, and credit monitoring in your secured credit card.

2. A secured credit card will be a credit builder: Using a secured credit card will be able to build your credit report. Especially if you are someone who has never taken any loan, then it is an excellent opportunity for you to build a credit report by using a secured credit card and paying the bills on time.

3. A chance of getting an unsecured credit card: If you are someone who is struggling a lot to get an unsecured credit card, then you can simply apply for a secured credit card to an issuer who also offers unsecured credit cards. Since many issuers will upgrade your secured card to an unsecured one without any documentation and will refund your deposit amount, it will be a great option.

4. A secured credit card can be a credit rebuilder: If you have already taken some loans previously and your credit history isn’t good, then you have a chance to rebuild your credit history and make it better this time by paying the bills on time again.


1. Deposit amount: If you are applying for a secured credit card, you must have enough money to deposit as a safety deposit in the bank, and once you do that, you will be able to use the card. As mentioned above, you need to have at least $200 for the same.

2. Low credit limit: If you compare your card to an unsecured card, then you may see (in some cases) that the limit of the secured credit card is lower than the unsecured ones. Some cards will be restrictive.

3. High-interest rate: If your purpose of using this secured credit card is to build or rebuild your credit history, then paying the extra fee will be a headache for you. Most of the secured credit cards will have a high-interest rate, which can bother you. But remember that no issuer can levy a fee of more than 25% of the card’s credit limit within the first year.

4. Chances of not getting an upgrade plan: Again, if you are using it just to get an upgrade plan of an unsecured credit card, then you must be aware of the fact that not all companies will have the upgrade policy.

Secured Vs. Unsecured credit card

No matter if you are here just for knowing about a secured credit card, but you need to know the difference between a secured and an unsecured credit card.

If you are going to have a secured credit card, you do not need to have any credit history because a secured card will also give security to the issuer of the card. Hence, they can anytime use the deposit money if you fail to repay on time.

However, when it comes to an unsecured credit card, you are not required to pay any deposit money to the issuer when you open the account, and hence, it will bring a risk to the issuer.

To keep it safe, the issuer of the card will analyze the credit history of yours before issuing a credit card to you. And they will need at least average credit history for issuing a card to you.

There will be few credit card companies available who will be ready to issue a credit card to you even if you have a bad credit history. However, they are going to charge extremely high for the same.

How does a secured credit card work?

Secured credit cards are easy cards that will not require any sort of documentation and credit history analysis like you need in an unsecured credit card. Also, you will not feel different while using a secured credit card once you pay the deposit amount.

You will be able to use the credit card everywhere, be it offline or online. You can incur the interest if you have a balance too. Also, it will be used in building or rebuilding credit history if you will pay on time.

Many known credit card issuer will offer you both secured and unsecured credit cards. The annual fee should not be more than $50, and if it is, try switching to another issuer with better rates. There will be many options, such as no annual fee in secured credit cards as well.

Talking about the best part, if you are not able to qualify for getting an unsecured credit card, getting a secured card can help you a lot. The key thing is to keep paying the bills on time, and your card will be on the way.

Tips for using a secured credit card safely

So here, we are sharing some quick and useful tips for you, which can help you in using a secured credit card safely and effectively.

1. Just because you have a secured credit card, you do not have to use it excessively. Make sure that you start using the card once or twice a month to make small purchases.

2. If your due date is near, then you must pay the full amount before the time arrives. If you ask for a reason, it is simple. If you do that, the interest amount will not be charged. Since the interest rates on secured credit cards are much higher than the unsecured ones, it will help you in saving yourself from paying extra.

3. Always make sure that you keep checking your credit score timely and see if it is improving or not. If it is, then you can talk to the issuer about upgrading your secured credit card to unsecured ones.

How quickly will you be able to build your credit?

Alright, so if you are here only to know how quickly will you be able to build a good credit report by using a secured credit card, then you need to have patience. It will take a year or so for building or improving your credit report, and it will only be done if you clear the bills on time.

If you are doing it, then simply wait for a year, and once your credit score is built, you can switch to an unsecured credit card.