All You Need to Know About Secured Credit Cards

secured credit cards

All You Need to Know About Secured Credit Cards

Unlocking the Benefits of Secured Credit Cards: A Comprehensive Overview

Many people fear using credit cards because it gets them into debt, and others understand credit cards are useful if used effectively. Credit cards allow people to delay payment with no interest for up to 30 days, making them the perfect financial tool for everyday purchases. Having a credit card and using it wiser will never let you worry about not having money for groceries.

People with bad credit or no credit may not be able to open a credit card. For these people, we at The Credit Pros recommend getting a secured credit card.

Secured credit cards are one of the best options for buying a new credit card or for people with a low credit score.

What are Secured Credit Cards?

Before discussing secured credit cards, it’s best to understand credit cards. A credit card allows its user to perform cashless transactions within a predefined credit limit with the intent of paying back the bill to the card issuer on their overall purchases at the end of the monthly period. A secured credit card is, in usage, just like any other. Credit cards will allow you to purchase them up to the available limit. At the end of the pay period (usually a month), you then have to pay a certain amount of the balance.

The difference between a secured credit card and an unsecured card is in the name. Secured, in this case, means that it’s guaranteed by collateral. You have to pay cash to open a secured credit card. This may help users with bad credit history to make use of the credit cards by pledging a certain amount as collateral. 

A cash deposit reduces the risk to the credit card issuer by making these cards an option for people with no or low credit. The credit card limit of the secured credit card is lesser than the general credit card limit, which allows nearly 75% to 85% of the fixed deposit amount. 

If you don’t pay your bill, the card issuer can take the money from your deposit. That is why these cards are available to people with bad or no credit.

If your on-time payment record with a secured credit card is consistent, the lender may eventually increase your credit limit or offer you an unsecured credit card with more appealing terms and better rewards. You may visit these links to learn how credit scores could help you with your needs. You may also check these tips to boost your credit scores

How to Open a Secured Credit Card?

To open a secured credit card, you will need a bank account and money for collateral (about $250). Once you have a bank account and money, you can request a card.

The bank will then ask for money as collateral for your card. Collateral is not a payment but is, instead, money held as a guarantee that you will pay your debts. If you are unable to pay your bill, the idea is that they can close the account and keep your money.

Your starting available balance is usually equal to the amount you put down. If you put $500 down, you will receive a credit card with a $500 balance. If you put $5,000 down, you have a $5,000 balance.

The collateral you put on the card is held for the life of the card. That is, if you cancel your card, you get your money back. However, if you miss too many payments, the bank has the right to close your account & keep the money. Check out these guidelines to make use of piggybacking credit cards.

How Secured Credit Cards Work?

Once the initial deposit is paid, secured cards work just like unsecured ones.

  • You can use them as credit cards because they are accepted everywhere, including online transactions.
  • You can build or rebuild your credit by using it responsibly and paying off your balances on time.
  • You incur interest if you carry a balance.

If you’re not qualified for an unsecured card, a secured card will be a good choice. You can improve your credit by using secured credit cards.

Who can Open a Secured Credit Card?

Anybody who passes the basic qualifications for a credit card can open an account. People with good credit scores need not provide any collateral security for credit cards available to them, but bad credit holders will find it hard to open a credit card, which is where the secured credit cards help. Secured cards are a way for people to build, or rebuild their credit history. People who have zero credit history, or a recent bankruptcy, will not be able to get a regular card. Since credit cards are so useful, people who can’t get a regular one will need to open a secured one. Because secured cards are guaranteed by collateral, virtually anyone can open one.

Who Offers a Secured Credit Card?

Nearly every bank offers some form of a secured credit card. Each bank has different cash requirements. Some will allow deposits as little as $250-$1,000 and as much as $10,000.

When choosing your card, it is best to choose standard cards that most vendors accept. 

Are Secured Credit Cards the Same as Prepaid Cards?

Secured credit cards and prepaid cards are completely different from each other, even though they may seem similar. A prepaid card is more similar to a debit card, except instead of charging money to a bank account, it charges money to a cash balance. You purchase a prepaid card and only have access to the money that you put on it. You never have to pay a bill on a prepaid card. Once the prepaid card is empty, that’s it. You cannot use the card anymore unless you reload it.

A secured credit card is, well, a credit card. You charge payments on it and get a bill at the end of the billing cycle. You’re responsible for paying the bill then.

Prepaid cards also have no impact on your score whatsoever. Secured card payments are recorded in your payment history. Thus, they affect your score.

How Does a Secured Card Help Your Credit?

All credit cards help you if you use them responsibly. The secured card is no exception. Having access to credit automatically helps your score over time. A secured credit card is an easy way to get access to credit.

Use a secured credit card for low-cost everyday purchases, and pay off the balance in full at the end of the month. This builds a good payment history and, if those payments are on time, you will see your credit score go up.

Ultimately, you want to either increase the balance on your secured credit card or open a traditional card. This gives you access to more credit, which helps your score even more.

Secured vs. Unsecured Credit Cards

Unsecured cards do not require a deposit and give more risk to the card issuer. Credit-card companies typically require at least average credit for a card and good to excellent credit for their best cards.

Some unsecured credit cards advertise themselves as easy to qualify for even if you have bad credit, but these cards usually charge extremely high fees.

If building credit is your goal, then use a secured credit card.

How to Use a Secured Card Effectively?

The secured card will always require a deposit, but they are a powerful tool for rebuilding your credit. Allowing users with low credit scores to use credit cards is a viable method to build credit, but if people are not responsible for their credit card bill payments, then they will worsen their credit scores and go further into debt. 

Follow these tips to use them effectively:

  • Use the card sparingly, like making only a few small purchases every month.
  • Pay your balances on time every month. When you pay in full, you can avoid interest charges. Interest rates are always high on secured credit cards.
  • Look at your credit score frequently. When it has improved, ask your card issuer about upgrading to an unsecured credit card.

Building Credit with a Secured Credit Card

Most people think it takes time to build your credit or improve your credit score, but it only takes about a year to improve your credit score, by using your secured credit card carefully.

Some card issuers will let you transfer your secured line of credit to an unsecured card, which would be a better choice since it does not require you to open a new account.

Even if you have to apply for a new unsecured credit card, you will have some of the benefits of having good credit, like lower interest rates, rewards, and more competitive fees.

When to Upgrade to an Unsecured Credit Card

A secured credit card is a good option to build your credit, but it is not an ideal long-term option since you have to deposit money to receive a credit limit. Eventually, you will need an unsecured card that will provide a bigger credit limit without a deposit.

Some card issuers may perform periodic account reviews to evaluate whether you can switch to an unsecured card. The transition from a secured card to an unsecured card differs between card issuers.

Some card issuers do not offer a transition process, which means you have to apply for an unsecured card, then close your secured card.

After using your secured card for quite a while, your credit score should rise. It happens quickly if you keep your balances low and make your payments on time. Once you have achieved a good credit score, you can use it for an unsecured card that will offer better reward programs and lower rates.

Some card issuers will allow you to upgrade to a variety of unsecured cards while keeping the same account.

Before you close your secured credit card, though, it is better to get approved for a new card. If you close your card before opening a new one, it is more difficult to get approved.

Do Secured Cards Offer Rewards or Benefits?

Some secured cards come with some of the rewards that make traditional credit cards so desirable. For example, a few secured cards will have benefits like cash back rewards, purchase and fraud protection, and rental car insurance.

Factors to Consider when Choosing a Secured Credit Card

It is important to take a look at the annual fees, APRs, and miscellaneous fees that come along with the secured credit cards you choose. Some secured cards will have higher APRs than others. This helps to save you time and money.

When you use your secured credit card, it is important to know how your credit scores are calculated and what you can do to improve them. Checking your credit reports regularly will help you stay on top of your finances and track changes in your credit scores.

You should make sure that the card issuer reports your information to the main three credit bureaus: Experian, Equifax, and Transunion.

Manage your secured credit card responsibly and make your payments on time. It will reflect in your credit reports, which can help to build or rebuild your credit.

Closing a Secured Credit Card

You can close a secured credit at any time. If there are no outstanding balances and you have completed your payments on the card, you can contact your card issuer to close your card.  

When you close a secured credit card, you should get back your deposit, and save any fees that your card issuer may impose. At this time, your card issuer may offer for you to convert your secured credit card to a normal card if you complete your payments.

Getting your Security Deposit Back

There are two ways to get your security deposit back with your secured credit card.

Upgrade to an Unsecured Credit Card

An unsecured card is an option for customers that start maintaining a decent credit score. With good credit scores, people do not have to stay with secured credit cards and rely on collateral security. Instead, they may upgrade to the unsecured credit card with their recent creditworthiness. However, only some secured credit cards can be upgraded to unsecured credit cards. The time depends on how you use your card and the card issuer’s policies.

Close your Secured Credit Card

One other way is that you can close your credit card account when it is in good standing. The disadvantage is that you cannot continue to build your credit history if you close the card.

Things to Consider before Applying for a Secured Card

  • Your application will have your name and your Social Security Number.
  • They will check your credit score. You can check for errors on your credit reports.
  • Look for offers.
  • Make sure you have enough money for the deposit. 
  • Some secured cards will require you to have a bank account to pay for the deposit, while others will allow a check payment.
  • Look for a secured card that reports to all three of the credit bureaus.
  • Reports of good payment history to the credit bureaus are essential for building and repairing credit.

Pros and Cons of Secured Credit Cards


  • Secured cards help you to build your credit. 
  • You will get approved for a secured credit card when you won’t get approved for a traditional one. 
  • Paying the security deposit reduces the credit risk to the credit card issuer.
  • A secured credit card will send your credit history to the credit bureaus, which will be included in your credit report.
  • A secured credit card will help you to establish or reestablish your credit. 
  • The payments are included in your credit report. Managing your balance and paying on time, will help you to improve your credit score.
  • Once your credit score increases, you will be able to qualify for an unsecured credit card.
  • If your default balance is more than your deposit, then you won’t get sent to collections for defaulting your payments. The security deposit is used only if you default on your payments. 


Secured credit cards are delightful for those who improve their credit scores, but there are some disadvantages also.

  • There are fees in addition to the deposit. You will pay a higher interest rate. Secured credit cards will not offer competitive interest rates because of the risk of default. To avoid high finance charges, pay off your balances in a full month.
  • Availability of loans with low credit scores will sometimes reduce people’s responsibility for proper bill payment and that may push the users into debit. 

Which Consumers are Secured Cards Suited For?

The recipient of a secured credit card is a person who has never owned a credit card or any other type of credit account, such as a loan. These types of customers will have a thin file with minimal data at credit bureaus about their payment activity. It will help to build your credit history.

With secured cards, if you have bad credit because of irresponsible credit behavior, you will gain the same advantage. For newly-using people, these actions, like habitually late payments, credit defaults, and bankruptcy declarations will cause the lenders to worry. It will leave the consumers with few options to rebuild their credit other than a secured card.

Even if card issuers do not pull a full credit report when reviewing your application, they will be verifying your income and determining if you have any other accounts, like checking or savings accounts with a bank. This information allows issuers to analyze your finances, including your ability to make a security deposit.

How to Choose the Best Secured Cards?

There are various secured credit cards to help you rebuild your credit. Instead of taking the first offer that comes your way, take some time to look at the secured cards and what they offer. 

Take a look at the following when buying secured cards:

  • Look at the fees
  • Report to the bureaus
  • Consider the source company
  • Standard features  
  • Check with a credit union

Look at the Fees:

Some secured cards will charge an annual fee, as well as other fees. Others don’t have a yearly fee but may charge you for a cash advance or balance transfer. 

Report to the Credit Bureaus:

The card issuers may not report your activity to the credit bureaus, which will have an impact on your credit history. Even if you use the card responsibly, it may not help you build credit unless it is reported to the credit bureaus. 

Consider the Source Company:

Some well-known card issuers will offer secured credit cards with rewards and benefits, but you may not be aware that many banks will provide secured cards. It will be good if you research the card issuer and make sure they are reputable and good at customer experience.

Standard Features:

Some secured credit cards will offer basic features, while others may add extra charges. There won’t be any hard credit checks involved for some types of secured cards. In some cases, instead of putting down a security deposit, you will use your savings to build your credit-builder account, so that there won’t be any extra deposits. A few other secured cards offer the opportunity to earn rewards or reduced security deposits.

Check with the Credit Union:

Credit unions offer a lower interest rate when compared to traditional banks. 

Denied a Secured Credit Card

If you have been denied a secured credit card, it may be best to wait before applying for other cards. Each credit card application will make a hard inquiry on your credit report. Hard inquiries will have a temporary effect on your credit score.

Become an authorized user who has a good credit history. It can be with a family member or your friend.

If you become an authorized user, you can use the credit history of your credit card account without any legal obligation to pay the balance to the card issuer. 

You can also improve your credit score and have a better chance of getting approved for your card from your desired credit card company.

Applying for a Secured Credit Card with No Credit

One of the most significant benefits of a secured credit card is that people with poor credit or no credit history can apply for a card.

With an unsecured card, most banks will not give someone credit unless they prove they have a strong credit history. With a secured credit card, you can pay a cash deposit to protect you even if you are late on your payments.

If you have a history of bankruptcy or foreclosure, some card companies will deny your application for a secured card.


Secured credit cards allow you to build and rebuild credit. The cards that don’t require a large deposit and are accessible by most people are generally preferred. The CreditPros furnishes loans for people with low credit scores by taking collateral from their customers and helping them rebuild their credit history. You may check out their official page to learn about their services

Frequently Asked Questions

How are secured cards different from prepaid debit cards?

The difference between secured cards and prepaid debit cards is that secured cards can help you to establish or repair your credit. When you pay your bill on time and keep your debt under control, it is a good process for the credit reporting bureaus.

How many secured credit cards should you have to rebuild your credit?

Two secured credit cards will help you to rebuild your credit. Using the second secured credit card responsibly will increase the amount of positive information which gets recorded to the credit bureaus.

What happens to your deposit on a secured credit card?

If you upgrade to a new card or close your card with the same issuer that will not have any outstanding charges. You will be qualified to get your deposits refunded completely. You need to check for the terms and conditions to confirm the refund policy with the issuer.

What is the credit card limit?

The credit card limit is the maximum amount that users may borrow from the credit card issuer. The card issuer sets the maximum limit of the credit card and will keep track of monthly purchases if the user exceeds the limit. 

Also, read

Share this Article


About The Credit Pros

Since 2007, TCP has been dedicated to Helping Consumers Get Accurate & Improved Credit Scores

Sign up for Credit Building
Tips & Helpful Information

Your privacy matters! We only uses this info to send content and updates. You may unsubscribe anytime.

Why wait? Get started today

It only takes 90 seconds to sign up. Start fixing errors on your credit report and get help to increase your credit score. Your information is safe with us. We treat your data as if it were our own.

Credit score ranges

Privacy and Cookies
We use cookies on our website. Your interactions and personal data may be collected on our websites by us and our partners in accordance with our Privacy Policy and Terms & Conditions