The Ultimate Guide to Credit Cards
Tuesday, March 19, 2024

How Does a Secured Credit Card Work? (+ 5 Best Cards) – March 2024

How Does A Secured Credit Card Work
Ashley Fricker

Written by: Ashley Fricker

Ashley Fricker
Ashley Fricker

Ashley Fricker has more than a decade of experience as a finance contributor and editor, and has specialized in the credit card industry since 2015. Her credit card commentary is featured on national media outlets that include CNBC, MarketWatch, Investopedia, and Reader's Digest, among many others. She has worked closely with the world’s largest banks and financial institutions, up-and-coming fintech companies, and press and news outlets to curate comprehensive content and media. Ashley holds a bachelor's degree in multimedia journalism from Florida Atlantic University.

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Edited by: Lillian Guevara-Castro

Lillian Guevara-Castro
Lillian Guevara-Castro

Lillian Guevara-Castro brings more than 30 years of editing and journalism experience to the CardRates team. She has written and edited for major news organizations, including The Atlanta Journal-Constitution and the New York Times, and she previously served as an adjunct journalism instructor at the University of Florida. Today, Lillian edits all CardRates content for clarity, accuracy, and reader engagement.

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Advertiser Disclosure

I recall researching my very first credit card as a college student and seeing a lot of terms I was unfamiliar with — secured cards, unsecured cards, APRs — and one of the big questions that jumped out at me was, “How does a secured credit card work?”

Thankfully, as a finance writer and through personal experience, I’ve become much more familiar with the credit card lingo over the years.

Secured credit cards are a great resource for anyone with poor credit looking to a) receive a line of credit and b) improve their credit score. Secured cards work the same way unsecured cards do in terms of purchasing abilities – if your secured card is Visa or MasterCard branded, it can be used anywhere Visa or MasterCard is accepted.

The only difference between a secured and unsecured card is that secured cards require a deposit upon approval. This is because secured credit cards are for people with low credit scores (600 or less) who do not qualify for a line of unsecured credit, that is, a card that doesn’t require a deposit. Below we’ll discuss how secured credit cards work, beginning with the application process. We’ll also walk through the deposit process and how it works, in addition to providing some steps to help you move up to an unsecured card.

1. Apply for Your Card of Choice

The way of the world seems to be the worse your credit is, the less favorable the terms and options for credit become. This isn’t necessarily true for secured credit, because some of the biggest and most reputable issuers offer secured lines of credit that can be a valuable tool in your credit-rebuilding process. The Capital One Platinum Secured Credit Card, in particular, is our top recommendation.

Secured Chime Credit Builder Visa® Credit Card Review

at the issuer'ssecure website

SECURED RATING

★★★★★

4.9

OVERALL RATING

4.5/5.0
  • No credit check to apply
  • Adjustable credit limit based on what you transfer from your Chime Checking account to the secured account
  • No interest* or annual fees
  • Chime Checking Account and qualifying direct deposit of $200 or more required to apply. See official application, terms, and details link below.
  • The secured Chime Credit Builder Visa® Card is issued by Stride Bank, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. and may be used everywhere Visa credit cards are accepted.
  • *Out-of-network ATM withdrawal fees may apply. See here for details.
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
N/A
$0
None
OpenSky® Secured Visa® Credit Card Review

at Capital Bank N.A.'ssecure website

SECURED RATING

★★★★★

4.8

OVERALL RATING

  • No credit check to apply. Zero credit risk to apply!
  • Looking to build or rebuild your credit? 2/3 of cardholders receive a 48+ point improvement after making 3 on-time payments
  • Extend your $200 credit line by getting considered for an unsecured credit line increase after 6 months, no additional deposit required!
  • Get free monthly access to your FICO score in our mobile application
  • Build your credit history across 3 major credit reporting agencies: Experian, Equifax, and Transunion
  • Add to your mobile wallet and make purchases using Apple Pay, Samsung Pay and Google Pay
  • Fund your card with a low $200 refundable security deposit to get a $200 credit line
  • Apply in less than 5 minutes with our mobile first application
  • Choose the due date that fits your schedule with flexible payment dates
  • Fund your security deposit over 60 days with the option to make partial payments
  • Join over 1.2 million cardholders who’ve used OpenSky to build their credit
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
25.64% (variable)
$35
Poor
Discover it® Secured Credit Card Review

at Discover Card'ssecure website

SECURED RATING

★★★★★

4.7

OVERALL RATING

  • No credit score required to apply.
  • No Annual Fee, earn cash back, and build your credit history.
  • Your secured credit card requires a refundable security deposit, and your credit line will equal your deposit amount, starting at $200. Bank information must be provided when submitting your deposit.
  • Automatic reviews starting at 7 months to see if we can transition you to an unsecured line of credit and return your deposit.
  • Earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus earn unlimited 1% cash back on all other purchases.
  • Discover could help you reduce exposure of your personal information online by helping you remove it from select people-search sites that could sell your data. It’s free, activate with the mobile app.
  • Get an alert if we find your Social Security number on any of thousands of Dark Web sites. Activate for free.
  • Terms and conditions apply.
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
10.99% Intro APR for 6 months
28.24% Variable APR
$0
New/Rebuilding

SECURED RATING

★★★★★

4.7

OVERALL RATING

  • No annual or hidden fees, and you can earn unlimited 1.5% cash back on every purchase, every day. See if you're approved in seconds
  • Put down a refundable $200 security deposit to get a $200 initial credit line
  • Building your credit? Using a card like this responsibly could help
  • Enjoy peace of mind with $0 Fraud Liability so that you won't be responsible for unauthorized charges
  • You could earn back your security deposit as a statement credit when you use your card responsibly, like making payments on time
  • Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
30.74% (Variable)
$0
Limited, Bad

SECURED RATING

★★★★★

4.7

OVERALL RATING

  • No annual or hidden fees. See if you're approved in seconds
  • Building your credit? Using the Capital One Platinum Secured card responsibly could help
  • Put down a refundable security deposit starting at $49 to get a $200 initial credit line
  • You could earn back your security deposit as a statement credit when you use your card responsibly, like making payments on time
  • Be automatically considered for a higher credit line in as little as 6 months with no additional deposit needed
  • Enjoy peace of mind with $0 Fraud Liability so that you won't be responsible for unauthorized charges
Intro (Purchases)
Intro (Transfers)
Regular APR
Annual Fee
Credit Needed
N/A
N/A
30.74% (Variable)
$0
Limited, Bad

When choosing a secured credit card, be sure to select one that reports to the three major credit bureaus – Experian, Equifax, and TransUnion – as this is the only way your responsible use of the card will do your credit score any good, but more on that later.

2. Deposit Money with Your Application ($49 – $3,000)

As mentioned previously, the only difference between secured and unsecured comes down to the deposit. A deposit is the issuer’s way of protecting itself in the event you default on payments, in which case the money is then deducted from the deposit. The deposit amount will be equal to the amount of credit you receive.

A partially-secured credit card, or semi-secured, is where you make a deposit that is smaller than the line of credit you receive. In some cases, an issuer will give you a line of credit larger than the required deposit, but this is solely based on your income and credit history, and at the discretion of the issuer. It has been reported that the Capital One Platinum Secured Credit Card offers partially-secured lines of credit to eligible applicants and periodically increases credit limits without an additional deposit to its responsible cardholders.

3. Your Deposit is Held Until You Close the Account

The issuer will hold onto your deposit until you close the account, in which case you will receive a refund for any unused portion. So long as you have a history of on-time payments and close the account after the balance is paid in full, you should see 100% of your deposit refunded. This system protects both you and the issuer if a payment is missed, which leads us nicely to our next point of discussion.

4. If You Fail to Pay, the Amount is Taken from Your Deposit

Just because you have a safety net in your deposit does not mean you should rely on it to pay your bill each month! This is not responsible behavior, and you will be reported as having paid late, which is the most heavily weighted factor when determining your credit score. Deducting from your deposit is generally reserved for multiple missed payments, but can vary by issuer.

5. Use the Card Like Any Other Credit Card

Whether you’re booking a hotel room online or looking to rent a car, a secured credit card can be used just as an unsecured card can, except in one of the following scenarios:

  • Your secured card is a Discover card, but where you’re attempting to transact doesn’t accept Discover.
  • You forgot to pay your bill, and now your account is frozen due to nonpayment.
  • You don’t have enough available credit on your card and are denied at the register to prevent overages.

Of course, each of these scenarios is applicable to unsecured cards, too. The bottom line is the person behind the cash register should be none the wiser to the fact your credit card is a secured card. The only way to tell it is a secured credit card is by viewing your credit report, where the line of credit will be listed as “secured”.

6. On-time Payments Can Improve Your Credit Score

This is where we explain how having a secured credit card can help build or rebuild your credit history. It can be a slow moving process, but nonetheless a step in the right direction.

There are really only two rules you need to follow to be a responsible borrower:

1. Always pay your bill on time. This is because on-time payments account for 35% of your FICO credit score. Nothing else matters as much as on-time payments – it is the highest weighted factor when your credit score is calculated.
2. Keep your credit utilization low. In other words, don’t max out your card. In fact, don’t even come close to maxing out your card. It is widely suggested to keep your credit utilization at or below 30% at all times. For example, if you have a credit limit of $1,000, never keep a balance above $300.

If you follow these two rules, you should see an improvement in your credit score as your bank begins to report your responsible behavior, which normally occurs once a month.

7. Upgrade to an Unsecured Card & Get Your Deposit Back

After having your secured card for a period of time and seeing your financial discipline reflected in your credit score, you may then be eligible to apply for an unsecured card. Aside from not having to put any money down to receive the credit, many unsecured cards offer rewards programs where you can start racking up air miles, cash back, or any other type of credit card rewards you desire!

This means it’s time to say goodbye to the secured card that helped you establish your credit and close the account. Assuming your account is in good standing and you’re all paid up, you’ll have a nice stack of cash returned to you!

Advertiser Disclosure

CardRates.com is a free online resource that offers valuable content and comparison services to users. To keep this resource 100% free, we receive compensation for referrals for many of the offers listed on the site. Along with key review factors, this compensation may impact how and where products appear across CardRates.com (including, for example, the order in which they appear). CardRates.com does not include the entire universe of available offers. Editorial opinions expressed on the site are strictly our own and are not provided, endorsed, or approved by advertisers.