What Is A Secured Credit Card

A secured credit card is like a traditional credit card, but it requires a refundable security deposit to open the account. The card’s credit limit is equal to the security deposit amount. Secured credit cards are a good option for those with poor or no credit history.

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APA Schell, J. (2022, July 18). What Is A Secured Credit Card. Annuity.org. Retrieved August 18, 2022, from https://www.annuity.org/personal-finance/credit-cards/what-is-a-secured-credit-card/

MLA Schell, Jennifer. "What Is A Secured Credit Card." Annuity.org, 18 Jul 2022, https://www.annuity.org/personal-finance/credit-cards/what-is-a-secured-credit-card/.

Chicago Schell, Jennifer. "What Is A Secured Credit Card." Annuity.org. Last modified July 18, 2022. https://www.annuity.org/personal-finance/credit-cards/what-is-a-secured-credit-card/.

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How Does a Secured Credit Card Work?

A secured credit card works in much of the same way as a traditional credit card. You can use it to make purchases in stores or online just like any other credit card. The issuer bills customers on a monthly cycle, and you can choose to pay your bill in full each month or carry a balance that you’ll pay interest on.

Secured credit cards are unique in that they require the cardholder to put down a refundable security deposit to open a credit account. The amount needed to deposit varies depending on the card issuer, but it can range anywhere from $50 to $300. The credit card issuer holds onto this deposit and, in turn, gives you a line of credit equal to the deposit amount.

What Are the Differences Between Secured and Unsecured Credit Cards?

At first glance, you wouldn’t be able to tell if a credit card was secured or unsecured. The differences between these two types are in the details of the card agreements that you sign when you open an account.

Secured vs. Unsecured Credit Cards
Secured Credit CardUnsecured Credit Card
Refundable security depositNo deposit needed
Credit limit based on security deposit amountCredit limit determined by credit history and income
May have higher APR than unsecured cardsAPR may be lower than secured cards
Easier to qualify for than unsecured cardsMay be difficult to get with poor or no credit
Source: Experian

Who Do Secured Credit Cards Work Best For?

Secured credit cards work best for those who need to build up their credit history and improve their credit score. That could be someone who’s never had a credit card before or someone who has a poor credit score and needs to repair a damaged credit history.

Building credit is an important part of personal finance. Because payment history is the most important factor in calculating credit scores, getting a secured credit card and paying off your balance on time is a fast and easy way to establish good credit.

If you have poor credit or no credit history at all, it can be difficult to qualify for a traditional unsecured credit card. Secured credit cards are generally easier to get than unsecured cards because they require a security deposit. If you default on your credit card debt, your credit card issuer can use your deposit to pay off your balance.

Secured cards can also be a good steppingstone towards getting an unsecured credit card. Many credit card companies will allow you to “graduate” from a secured to an unsecured credit account after you establish several months of paying on time and in full. You may even have your credit line extended and your deposit returned.

What’s an Example of a Secured Credit Card?

Just like traditional credit cards, there’s a vast variety of secured credit cards out there, and each one has different terms and conditions. You’ll want to shop around and choose one that suits your needs. To help give you an idea of what offers are available for secured credit cards, let’s look at two examples.

Discover it® Secured Credit Card

The Discover it® Secured Credit Card requires a refundable deposit as low as $200 to open an account. You can choose a higher deposit amount if you’re approved for it, which will also increase your available credit.

Other features of this card include a 23.74% APR, no annual fee and the ability to earn 2% cash back at restaurants and gas stations on purchases up to $1,000 each quarter. Discover also matches all the cash back you’ve earned at the end of your first year with the card.

Capital One Platinum Secured Credit Card

Capital One’s Platinum Secured card has three options for the amount of the refundable security deposit; customers can choose to deposit $49, $99 or $200 to open the account with an initial credit line of $200. The account is automatically reviewed for credit limit updates every six months, so your credit line could increase after only a few months if you’ve paid on time consistently.

The Platinum Secured card has a higher APR than Discover’s at 26.99%. Capital One’s secured card has no annual fees, no authorized user fees, no foreign transaction fees and no replacement card fees. Customers can choose a due date for the credit card bill that best aligns with their monthly budget.

How Do I Apply for a Secured Credit Card?

If you need an accessible way to build credit history, a secured credit card may be right for you. Just like any other credit card, approval for a secured credit card isn’t guaranteed. Here’s how to apply for a secured credit card:

How to Apply for a Secured Credit Card
  1. Check your credit score.
  2. Compare secured credit card offers.
  3. Apply for the card you want.
  4. If approved, pay the security deposit to open your account.

Alternatives to Secured Credit Cards

Secured credit cards are more accessible to many individuals than unsecured cards, but they’re not right for everyone. Consumers looking to build their credit have a few alternatives to choose from.

Alternatives to Secured Credit Cards
Student credit cards
These are cards designed for college students who are just starting their financial journey and have no credit history. They may have student-friendly features like a low APR and rewards program.
Retail credit cards
This type of credit card can only be used at a certain retailer, such as a department store or supermarket chain. Retail credit cards tend to have lower credit limits and may be easier to qualify for than a traditional credit card.
Authorized user
You can build your credit history as an authorized user on a friend or relative’s credit card account. Becoming an authorized user grants you access to the line of credit offered by a credit card without going through a strict approval process.

Frequently Asked Questions About Secured Credit Cards

What is a secured credit card?
A secured credit card is a credit card with a lower credit limit that requires a refundable security deposit to open the account.
Why would someone choose a secured credit card?
You might choose a secured credit card if you have trouble getting approved for unsecured credit cards due to poor or no credit history.
Who offers secured credit cards?
Most credit card issuers offer a secured credit card option, including five of the top credit card companies in America: Citibank, Capital One, Bank of America, Discover and U.S. Bank.
How do payments work on a secured credit card?
Payments on a secured card work the same as an unsecured credit card: each month, you receive a statement showing you the full balance of your card and the minimum payment you must make. If you pay the balance in full each month, you’ll establish good credit and avoid costly interest charges.
Please seek the advice of a qualified professional before making financial decisions.
Last Modified: July 18, 2022

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