What is a secured credit card and how does it work?
When used responsibly, a secured credit card can be a great tool to help you build good credit. But before you apply, it may help to learn more about secured credit cards, how they work and the benefits they can offer.
What you’ll learn:
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A secured credit card may be a good option for people looking to establish or rebuild their credit.
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To open a secured credit card account, a cardholder typically makes a one-time refundable security deposit.
- Secured card credit limits vary. Depending on the card issuer, the limit may be the same amount as the deposit or higher.
What is a secured credit card?
A secured credit card is a type of credit card that requires a security deposit to open the account. The cardholder typically makes a one-time refundable security deposit that acts as collateral for the credit card issuer.
A secured credit card can be a great option if you’re trying to build credit. It may also be an option if you’re unable to qualify for an unsecured credit card.
How does a secured credit card work?
When it comes to purchases, secured cards work the same as other credit cards. With a secured credit card, the issuer requires a refundable security deposit, similar to a landlord holding a deposit for an apartment.
In some cases, the security deposit may be the same as your line of credit. For example, a $200 deposit might give you a $200 credit limit. But some cards might provide a credit limit that’s higher than the amount of the security deposit. With the Capital One Platinum Secured card, an initial security deposit of $49, $99 or $200 can open an account with a credit line of $200. Platinum Secured also lets cardholders raise their credit limit by depositing more than the minimum.
Unsecured vs. secured credit cards
The biggest difference between secured and unsecured credit cards is the security deposit. Unsecured credit cards don’t require a deposit to open an account. For this reason, the minimum credit score required to qualify for an unsecured card may be higher. Unsecured cards may also offer lower interest rates and higher credit limits than secured cards.
Rewards like cash back or miles may be limited with secured cards. But not in all cases. For example, the Capital One Quicksilver Secured Rewards card offers cardholders 1.5% cash back on every purchase.
How to apply for a secured credit card
The process of applying for a secured credit card varies by issuer. But here’s how applying might work.
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Get approved for a secured card. To start, you could check whether you’re pre-approved for a secured card before you apply. At Capital One, pre-approval is quick and secure, and it won’t hurt your credit scores. But as with any credit card, getting approved for a secured card isn’t guaranteed. And even if you’re pre-approved, you still may have to go through the official application process.
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Make your security deposit. Deposit requirements can vary. Some card issuers allow you to fund your deposit over a period of time. Others may require an upfront deposit.
- Start using your secured card. Once you’ve received your card, you can use it to make purchases just like with a traditional unsecured credit card. If your goal is to build credit, it’s important to use your credit card responsibly. That means doing things like making on-time monthly payments and keeping your balance low.
Potential benefits of secured credit cards
There are plenty of advantages to using secured credit cards. A secured card could help you:
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Gain experience using a credit card
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Access a line of credit when you need it
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Build your credit with responsible use, like paying your bill on time every month
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Work toward qualifying for an unsecured credit card
How to build credit with a secured credit card
Here are tips for using a secured card to build credit.
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Understand your deposit. Make sure you’re able to fully fund your deposit within the time frame required by the card issuer. If you don’t fund the deposit in time, there’s a chance the issuer may close your account.
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Keep track of your spending and statements. Your credit card may be declined if you exceed your credit limit. And if you’re paying interest, you could end up owing more than your initial deposit.
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Make payments on time. Paying at least the minimum on time every month can help you avoid late fees and other penalties. And if you’re able to pay your statement balance in full, you may be able to avoid interest charges.
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Use a budget. If you only use the card for a few fixed purchases each month, it may be easier to limit your spending and stay within your credit limit. Taking this approach could also help you get familiar with using a credit card.
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Choose a card issuer that reports your credit activity. Some issuers may not report the activity of secured credit card accounts. If you’re looking to build your credit by using a secured card, make sure your issuer reports to at least one of the three major credit bureaus: Experian®, Equifax® or TransUnion®. Capital One reports secured card accounts to all three bureaus.
- Monitor your credit. One easy way to keep an eye on your credit is by using CreditWise from Capital One. It’s free and won’t hurt your credit score, and it’s available even if you’re not a Capital One cardholder. With CreditWise, you can access your free credit report in minutes. You can also visit AnnualCreditReport.com for free copies of your credit reports from each of the three major credit bureaus.
Secured credit card FAQ
Learn more about secured credit cards with these frequently asked questions.
Can I upgrade from a secured credit card to a traditional credit card?
Some issuers may allow you to upgrade from a secured card to a traditional card without closing your original line of credit. They may even return your deposit. Check with your issuer to understand what’s possible and how your account will be treated if you transition to a traditional card.
With a Capital One secured card, you’ll be notified that your card has been upgraded to an unsecured card if you become eligible.
What’s the difference between secured cards, prepaid cards and debit cards?
Secured credit cards are lines of credit opened with a one-time refundable security deposit. Prepaid cards are prefunded by loading money onto the card. And debit cards are usually connected to a checking account.
Unlike secured credit cards, prepaid cards and debit cards may not help you build credit. That’s because activity on those accounts usually isn’t reported to credit bureaus, according to the Consumer Financial Protection Bureau. Prepaid cards may also lack many of the security features of a credit or debit card.
Is a secured credit card a good idea for me?
A secured credit card may be a good option for you if:
- You want to build credit.
- You’re unlikely to qualify for an unsecured credit card.
- You have enough cash to pay the required security deposit.
- You’ll be able to make on-time monthly payments.
How much will a secured credit card raise my credit score?
Using a secured credit card responsibly over time is one way to build your credit scores. But there’s no way to predict how much your scores might improve.
Key takeaways: Secured credit cards
A secured credit card is a type of credit card that’s opened with a one-time refundable deposit. These cards can be helpful tools for people looking to build their credit.
With responsible use, a secured card could be part of building credit and working toward financial goals. To get started, check whether you’re pre-approved for a Capital One secured credit card.
Explore more from Capital One
Are you new to credit or searching for your next credit card? Capital One can help:
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Check for pre-approval offers with no risk to your credit scores.
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Earn unlimited 1.5% cash back on every purchase, every day with Quicksilver or other cash back rewards cards.
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Explore credit cards you can use to build credit responsibly and earn rewards.
- Monitor your credit score with CreditWise from Capital One. It won’t hurt your credit, and it’s free for everyone.
