What Is a Secured Credit Card? And How Do They Work?

Written by Meagan DrewReviewed by Nathan Brown, CFP®Updated: 13th Apr 2022
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To qualify for most credit cards, you have to have a decent credit score. If you don’t have a decent credit score and you want to improve your credit, you probably are going to need a credit card to help you do that.

That’s a problem, but there are credit cards available to help you rebuild or build credit. These credit cards are called secured credit cards and almost anyone can qualify.

What Is a Secured Credit Card?

Secured credit cards are a solution for anyone struggling to be approved for a credit card because of low or no credit history.

These cards require a deposit to “secure” the credit card purchases and, typically, the credit limit for the card is 50% or 100% of the initial deposit.

Because cardholders are securing their debts with cold, hard cash, the secured credit card companies sometimes don’t even check credit before they sign you up, and even if they do, you’re still likely to be approved, so there is no need to sweat the approval.

How Does a Secured Credit Card Work?

To qualify for a secured credit card, you don’t have to have a stellar credit score. You just need to come to the table with money, honey to collateralize or secure your card.

The secured card company then sets your credit limit based on the amount you collateralized with.

The limit is sometimes exactly the collateralized amount and sometimes the card limit might be as much as 2x the amount you used to secure the card.

The secured card company reserves the right to use your collateral to pay off your credit card in the event of nonpayment.

The secured credit card company does not dig back in your history to find out your mother’s favorite uncle’s middle name or ask for your last 18 bank statements and most don’t even run a credit check.

They do, however, report to the three major credit bureaus, so when you pay your bills on time- your credit history is going to get some good press.

What’s the Difference Between Secured and Unsecured Credit Cards?

Unsecured credit cards and secured credit cards both let you borrow money with the intent of paying it back.

Unsecured credit cards set the cardholders’ limit based on credit history, credit score, debt to income ratio, etc.

The unsecured credit card holders can burn their card all the way up until they reach their credit limit as long as they continue making their monthly minimum payments.

Secured credit cardholders only get a credit limit of 50% or 100% of the amount they used to secure the loan.

Secured credit cards are issued without all the credit investigation but secured credit card holders cannot expect to be wildin’ with their secured card.

A secured card is a method to build credit, not a way to finance purchases that you truly cannot afford.

Do Secured Credit Cards Help Build Credit?

Absolutely, they do. Secured credit card companies report to the three major credit bureaus.

Paying your bill on time and managing to keep your balance under control will improve your credit score over time.

If you don’t pay your bills, well, the secured credit card company will freeze your card and take the money you owe them from your collateral if there is enough to cover what you spent.

If you are spending more than you have on your card because your credit limit is higher, you could have a really bad day when you find out that they report that too.

Secured credit cards will definitely help you build your credit, but you have to be ready to pay your bills on time and control your balance.

How Fast Does a Secured Card Build Credit?

Cardholders that pay their bills on time and control their limit find that using a secured card can improve their credit enough to qualify for an unsecured card in as little as one year.

Another perk is that some secured credit card companies will allow cardholders to roll over their cardholder status to an unsecured card without opening a new account.

This is fantastic news for people working on their credit because it does not ding your credit score like a typical account opening would ding it.

How to Use a Secured Card Effectively & Responsibly

Affordable Collateral Amount

Before you open a secured credit card, you need to really be honest with yourself about how much money you can afford to use as collateral.

Establishing or improving your credit is important, but don’t promise money to your secured credit card that you need to pay your light bill.

Where to Use It

Secured credit cards are accepted at any place an unsecured card is accepted, so you don’t have to worry about finding places that take them.

Small Purchases

The best way to use a secured credit card is to make small purchases that you know you won’t have trouble paying off more than the minimum balance every month.

Make More than the Minimum Payment and Make It on Time

All payments are not equal. Secured credit card payments should always be made on time and more than the minimum amount due.

Paying more than the minimum amount shows that can manage your money.

Paying more than the minimum balance also decreases the amount you have on the secured card versus the amount you *could* have on the card which is a great thing for your credit score.

What Are the Pros and Cons of Secured Credit Cards?


  • No Credit Check
  • Help Build Credit
  • Allow Cardholders to Practice Healthy Financial Habits
  • Some Cards Have Rewards


  • Some Cards Have Higher Interest Rates
  • Must Have Money for Collateral
  • Some Cards Have Fees

Alternatives to Secured Credit Cards

#1. Credit Building Loans vs. Secured Credit Cards

Credit building loans and secured credit cards both help people establish or rebuild credit. The difference is in how.

Credit building loans are available at select banks and credit unions. They don’t require a deposit at all. Instead, the financial institution lets the person pay on a loan until it is repaid and then they release the loan amount to them.

It’s a pre-pay situation and all your payments are reported to the credit bureau to beef up your credit score.

Secured credit cards require you to collateralize your loan upfront, whereas, credit building loans require nothing down because you are paying forward the loan amount over time.

#2. Prepaid Debit Cards vs. Secured Credit Cards

Both prepaid debit cards and secured credit cards are advertised to the target market of people struggling with bad or no credit, but they are not even close to the same thing.

Secured credit cards and prepaid debit cards both require cardholders to deposit an initial amount, but the prepaid debit card pulls money from the account every time you use it.

The account attached to the prepaid debit card is like a checking account and cardholders are required to deposit more money before they can spend more money.

The prepaid debit card company does not report anything to the three major credit bureaus either so it does not help rebuild or build credit like the secured credit card.

Who Should Use Secured Credit Cards?

Secured credit cards are a great option for anyone who is looking to fix their credit or build their credit and has some money that they can use for collateral.

These are not an automatic win as far as credit rebuilding or building goes though, so cardholders need to be prepared to be responsible with their cards and pay their bills on time or the negative reports will defeat the purpose of the card in the first place.

What Are Some Good Secured Credit Cards?

#1. Discover it® Secured Credit Card

The Discover it® Secured Credit Card is one of the most popular secured credit cards because it has no annual fee and allows users to earn rewards.

Cardholders carrying the Discover it® Secured Credit Card earn 2% on all spending at grocery stores and restaurants up to $1,000 per quarter and then they earn 1% cashback. They also can expect to earn 1% cashback on everything else.

Additionally, Discover it® Secured Credit Card will match your cashback at the end of the first year which gives cardholders more free money.

And, perhaps, the most valuable perk of having the Discover it® Secured Credit Card is the access that Discover gives you to your FICO score.

Cardholders can watch their credit score go up, up, up every month as they work on rebuilding or building their credit.

#2. Secured Mastercard® from Capital One

The Secured Mastercard® from Capital One is an excellent option for anyone who doesn’t have a lot of cash on hand to secure their credit card.

Deposits on the Secured Mastercard® from Capital One can be as low as $49 and are fully refundable.

There are other available increments of $99 and $200 also for anyone looking to deposit a bit more.

Cardholders with this card get to pick their payment date which helps make sure that the payments are due at a convenient time.

As a bonus, cardholders with a good payment history can be automatically considered for a higher credit limit in as little as six months!

There are sadly rewards for this card, but with no annual fee and smaller initial deposit requirements, this is still a solid choice for people looking to improve their credit.

#3. Chime Credit Builder Card

To those people looking to work on their credit without plunking down a major chunk of change, the Chime Credit Builder Card could be the answer.

The Chime Credit Builder Card has no minimum deposit and what you deposit is your credit limit. The Chime Credit Builder Card also has no annual fee and no interest.

The Chime Credit Builder Card also does not require a credit check.

Opening an account is quick and easy and the Chime Credit Builder Card reports an average increase of 30 points for anyone using their card responsible.

Cardholders are not going to be receiving rewards with this card, but all of the nos: no minimum deposit, no annual fee, no interest, and no credit check make this card a real winner.

Bottom Line: What Is a Secured Credit Card?

A secured credit card is an opportunity. Anyone needing to give their credit score a little oomph can use a secured credit card to work towards that goal.

Secured credit cards work like unsecured cards just with the added step of a deposit and can make a major difference in financial health.

More Secured Cards:

Meagan Drew
Meagan Drew

Meagan Drew is a Senior Personal Finance Writer & Product Analyst with 7 years experience in wealth management. As a former Series 7 and 63 certified advisor, Meagan specializes in making financial topics relatable and consumable, no matter the reader’s experience level. She attended the United States Military Academy at West Point where she studied Nuclear Engineering. Meagan is a veteran, military spouse, and mom of 4 currently living in Colorado Springs. Her areas of expertise are military personal finance, credit cards, personal loans, investing, and wealth management.