What Is a Secured Credit Card?

Secured credit cards can be valuable tools for building or repairing your credit history. They require an upfront deposit that sets your credit limit, which acts as insurance for the card issuer if you can't make payments.

Even though they may have higher fees and fewer rewards, they're easier to get if you have a low credit score or no credit history. Just like a regular card, you can use a secured card for purchases, but the lower limits can help keep your spending under control. If you're new to credit or trying to bounce back from financial hardships, a secured credit card might be right for you.

Unlike a regular or "unsecured" credit card, a secured credit card requires you to provide a security deposit upfront. This deposit acts as collateral insurance for the card issuer in case you can't make your credit card payments.

Beyond that, a secured credit card functions similarly to any other card. You use it just like a regular credit card — for purchases, bills and other transactions. You then get a monthly statement that you should pay off to avoid interest charges. The main difference is what happens if you can't pay your bills. If that happens, the card issuer uses your deposit to cover the unpaid balance.

Unlike a secured credit card, an unsecured credit card is a standard card that doesn't require a security deposit and relies solely on your creditworthiness — your credit score and history — for approval. This feature can make unsecured cards harder to obtain for those new to credit or with past financial missteps.

Some of the differences between secured and unsecured credit cards include:

• Security Deposit: A secured card requires a deposit that serves as collateral, providing a safety net for the issuer. The deposit could range from under a hundred dollars to a few thousand. In contrast, unsecured cards don't require a deposit.
• Credit Limit: For secured cards, the deposit typically determines your credit limit. Most issuers offer a limit equal to your deposit, although getting a larger limit with some issuers is possible. However, unsecured cards rely on your income and credit history to set your limit.
• Credit-Building: Both types of cards can help you build or rebuild your credit. It's important to check that your secured credit card reports your account activity to the three major credit bureaus to make it count in building your credit score.

Comparing secured and unsecured credit cards side by side can help you find the right card for you:

A secured card operates like a regular credit card, with a few key differences. Consider the pros and cons of a secured credit card before applying.

Determining the right credit card for you depends on various factors, including your financial circumstances, objectives and past credit behavior. Ask yourself these questions to help decide if a secured credit card is your best option:

• Are you new to credit? For those who haven't had the opportunity to build a credit history, a secured card can serve as an excellent launching pad. It allows you to begin establishing a track record of responsible credit usage.
• Are you looking to rebuild your credit? If past financial missteps have impacted your credit score, a secured card could be the lifeline you need. Making on-time payments and maintaining a low balance can improve your creditworthiness.
• Have you had trouble getting approved for an unsecured card? A low credit score or a lack of credit history might result in denials for unsecured cards. In these cases, a secured card, with its generally easier approval process, can provide an alternative path to building credit.
• Are you able to afford the security deposit? The security deposit is a key factor to consider with secured cards. Be sure you can comfortably afford this upfront deposit without depleting your emergency funds or causing financial stress. It's about balancing your immediate financial health with your long-term credit goals.

Secured credit cards are valuable tools, especially for those new to credit or working to improve their credit history. They're often easier to get approved for and can help control spending habits. However, they do require an upfront deposit, have typically lower credit limits and may come with higher fees. The decision to opt for a secured credit card depends on individual financial circumstances and goals. How you use the card will shape your credit journey. Responsible usage is the key to graduating to an unsecured card and building a stronger credit score.

While our main article covers the essentials of secured credit cards, we understand that you might still have specific questions. To address these, we've compiled a set of additional FAQs below, tackling topics that weren't directly touched upon earlier.