There’s a lot of inaccurate information floating around about secured credit cards, but we’re happy to set the record straight by tackling more than 20 common questions below. Scroll down to learn more about everything from refundable credit line deposits to the right (and wrong!) way to use a secured credit card.
Basic Information About Secured Credit Cards
What is a secured credit card?
A secured credit card offers a line of credit backed by your own funds. The credit card company that approves you provides specific instructions about the minimum and maximum amount of money you can add to your account, and that money becomes your credit line.
For example, a secured credit card company might say you can deposit between $300 and $2,000 toward your credit line. You decide to deposit $500, so you have $500 available to spend. If you rack up $450 in charges, you only have $50 left until you make a payment on the card. This frees up some - or all - of your approved credit line, and then you can repeat the process as desired.
Is a secured credit card the same as a prepaid debit card?
Technically the answer to this question is no, but we get why some people think secured credit cards and prepaid debit cards are the same. Both cards typically share a few common traits, including:
- A distinguishable logo, such as Visa or MasterCard, on the front
- Self-funded spending limits
- Acceptance online and at brick-and-mortar stores
However, there’s one major difference: Secured credit cards usually show up on your credit report, and prepaid debit cards don’t. Another difference is that you can spend as much money as you want (as long as you don’t exceed your card’s deposit value or limits) with a prepaid debit card, but you’re stuck with a predetermined credit line when you use a secured credit card.
Can I get a secured credit card with no deposit?
No, you can only get an unsecured credit card without a deposit. A secured credit card gets its name from the process used to fund the card. Cardholders fund their card with cash collateral which then gets converted to a line of available credit.
Sometimes card companies offer partially secured cards that don’t require a deposit that matches the credit line. An example of this is the Capital One Secured MasterCard (our top pick on the list above!), which sometimes requires a deposit of just $49 or $99 instead of $200. The deposit is based on your credit score, and it’s for a card with a $200 credit limit.
How is a secured credit card different from an unsecured credit card?
An unsecured credit card has a credit limit funded by a bank or credit card company, while a secured credit card has a credit limit funded by you. Sometimes you have more flexibility choosing a credit limit for a secured card than an unsecured card because it’s protected by your cash collateral. The credit limit for an unsecured credit card is determined by your income and credit history, while the credit limit for a secured credit card matches (or in some cases, slightly exceeds) your deposit.
It’s also worth noting that secured card providers typically run soft inquiries when they even bother to check your credit at all, while popular unsecured credit card companies are notorious for dinging your FICO with hard inquiries. You can generally get a secured credit card after bankruptcy or a history of collections and garnishments, but folks with poor credit often struggle to get approved for unsecured cards.
Why would someone want a secured credit card?
Honestly, sometimes a secured credit card isn’t an applicant’s first choice. Many prequalification tools and rejection notices recommend secured cards when an applicant doesn’t qualify for the unsecured card they want.
However, that doesn’t mean that nobody wants secured cards. Secured credit cards are popular with people who are establishing, building, or repairing their credit. After a bankruptcy fully discharges, many people turn to secured cards to help them rebuild their credit. In fact, NerdWallet says getting a secured credit card is “probably the best way to start” rebuilding your credit after you get your discharge notice.
Are secured credit cards for people with bad credit?
No, but they’re a hit with the low-FICO crowd because they’re easy to get, plus they help improve credit when used responsibly. Many secured card companies gear their cards toward people with bad credit, which is why they’ve got high interest rates and a noticeable lack of the cash-back and travel-related rewards associated with many unsecured cards.
What is the best secured credit card?
Our favorite secured credit card is the Capital One Secured MasterCard because you get an automatic credit limit increase after just 5 consecutive monthly payments - assuming you pay on time, that is. You don’t have to fork over an additional deposit for this increase.
We also love these secured credit cards for folks who are building or fixing their credit:
- Discover It Secured Credit Card
- Merrick Secured Visa Credit Card
- OpenSky Secured Visa Credit Card
NerdWallet and WalletHub share many of our views when it comes to secured credit cards, and both sites recommend the Capital One Secured MasterCard.
The Application Process
Where can you get a secured credit card?
Secured credit card applications are available online from card providers like Capital One, Discover, and Merrick Bank. You can also apply for a secured credit card at a local financial institution such as a credit union or bank.
Do secured cards run a credit check?
Some do, some don’t. We’ve noticed that many secured cards just run a soft inquiry, which doesn’t hurt your credit. However, you might get hit with a hard inquiry if you fill out a general credit card app (translation: you’re willing to take whichever card the company offers you).
Can you get denied for a secured credit card?
Yes, it’s possible to get denied for a secured credit card - but your chances of getting approved are high. You might receive a rejection letter if you’re currently going through bankruptcy or if you’ve recently defaulted on another secured card from the same company.
If you get denied, wait at least 3 to 6 months before you apply again. Make sure you fix the issues that triggered the rejection first (you can request a letter detailing the factors that caused your credit denial if the company doesn’t automatically send one). Remember, it takes time for changes to appear on your credit report - so don’t reapply the same day you handle your financial affairs. If you’re not sure whether your credit report has been updated, you can request one free credit report from each credit bureau once a year.
Can I get my child a secured credit card?
You can get a secured credit card for yourself and add your child as an authorized user, but be careful. Here are some things to consider:
- If you pay your bill late, you can damage your child’s credit before they even become an adult
- Your child may lower your credit score by increasing your credit utilization ratio, even if the monthly bill gets paid on time
- A child may not keep the card in a safe place, putting you at risk for fraudulent charges and/or identity theft
- You may have to pay multiple fees, including an authorized user fee and an extra card fee
If you decide getting your child a secured credit card is worth the risk, you’ll need their Social Security number. You may also have to prove that you’re the legal guardian if your child is under 18. American Express and Discover both make you wait until your child is at least 15 years old before you add them as an authorized user, but Capital One and Wells Fargo don’t have a minimum age requirement as of 2017.
Deposits and Other Charges
How much is the deposit for a secured credit card?
Deposit amounts for secured credit cards vary, but potential cardholders often have a say in how much they pay. That’s because you’re funding your own line of credit, so there isn’t a high risk for the card company you choose. Secured credit card companies typically provide a range, such as $200 to $3,000, and let you deposit any amount of money between that range.
We’ve never seen a secured credit card with a credit limit lower than $200, so you’ll probably pay at least that much for your deposit. The exception is if you get approved for the secured Capital One MasterCard that we mentioned earlier; sometimes the company only charges $49 or $99 for access to a $200 credit limit.
What if I can’t afford the deposit after I’m approved for a secured credit card?
If you can’t afford the deposit immediately, no biggie - you probably have plenty of time. Many companies give you several months to pay your deposit, and you can often break it down into multiple payments.
If you can’t afford the deposit at all - like, not even in a few months - it’s probably not the right time for you to apply for a secured credit card. Some secured cards run a hard inquiry, and that hit remains on your report for 2 years even if you never pay your deposit or use the card. You have the option to request an inquiry removal via a dispute letter, but the company has the option to decline your request.
Does my deposit earn interest?
It might, but it depends on which card you choose. Your deposit doesn’t earn interest if you get the Capital One Secured MasterCard or the Discover It Secured Credit Card, but these cards both have a reputation for returning deposits promptly to qualifying cardholders.
We’ve seen some secured cards from banks and credit unions that pay interest on deposits, and some cards that cater toward military members do the same.
Is my deposit refundable for a secured credit card?
Your deposit is fully refundable unless your credit card agreement states otherwise. You generally get your deposit back when you close your account as long as you don’t owe the company any money. A bankruptcy may also affect your deposit.
Some companies mail a check for your deposit after a certain amount of time passes, such as 12 or 18 months, with no card-related issues. Others credit the amount to your secured credit card. You can find the specifics of deposit refunds for your specific card by viewing your cardholder agreement. Companies are required to clearly outline the terms of your credit agreement.
Do I pay interest on my purchases if I have a secured card?
Yes - and plenty of it. We’ve never found a secured credit card with a 0% APR; most secured cards have variable interest rates that are at least 18%.
We’re not trying to scare you out of getting a secured credit card, though. If you need to fix your credit, a secured card is the way to go. After paying your bill on time for a while, you’ll most likely qualify for unsecured credit cards with decent interest rates.
Secured Cards and Your Credit
Do secured credit cards really help your credit?
Yes, secured credit cards really help your credit - if you use them correctly. If you fail to pay your bill on time or max out your secured card, your FICO score might get worse. In fact, it can fall as low as 300 if you fall behind on your credit cards and other accounts. Trust us when we say that is not something you want.
How should I use my secured card?
Carefully. Very carefully.
We’ve heard people make comments like, “My credit can’t get much worse, so who cares what I do with this card?” We disagree with statements like that because your credit can always get worse. It can also get better, which is why it’s vital that you use your secured card the right way.
Here are some practical tips to help you benefit from your secured credit card:
- Always pay your bill on time - no exceptions. If an emergency arises, contact the card company ASAP and ask if they’re willing to waive the late payment fee and/or remove the late payment from your credit report.
- Keep your credit utilization ratio lower than 30% whenever possible. If you have a card with a $500 limit, that means you should charge less than $150.
- Pay off the entire bill each month if you can. This will help you avoid hefty interest fees, and it also helps your credit utilization ratio.
- Watch out for authorization/preauthorization holds for hotel rooms and car rentals - these can temporarily reduce your credit limit. There are also companies that only place a hold for a dollar or two during preauthorization, which may make you think you have more money than you actually do.
Also, make sure you get the scoop on card-related fees specific to your card. You don’t want to unknowingly get hit with an annual fee or monthly maintenance charge when your card is almost maxed out.
Do I have to use my secured credit card to improve my credit?
Some people can get away with getting a secured credit card and never using it, while other cardholders benefit from making small but regular purchases. It depends on what you’re currently doing with other lines of credit that show up on your credit report. You should also consider your long-term financial goals and think about what you want from your credit card company.
For example, you’re less likely to score a credit limit increase if you never use your card. Credit card companies give you cards because they want to make money off of you, and they do that by tacking on interest when you buy things with your card. Sure, they can charge you annual fees and monthly maintenance fees, but they really want you to use your card for online and in-store purchases.
However, getting a secured credit card just to have one - not to buy anything - can potentially help you if you have other cards that are maxed out. Your overall credit utilization ratio drops whenever you get a new card because you’ve got more credit but haven’t racked up any additional debt yet.
Just keep in mind that the credit card company might close your secured credit card if you never use it. They can’t legally charge you an inactivity fee thanks to the CARD Act of 2009, but they can close your account whenever they feel like it unless your card contract specifies otherwise. If your account gets closed, your FICO score might suffer because you have less available credit.
Can you use a secured credit card to build credit fast?
Despite what late-night infomercials and spammy emails promise, there’s no rapid-fire way to increase your credit score. Sure, some people build credit fast with a secured credit card, and we’ve even heard reports of people boosting their score by more than 100 points in just a few months. That’s not the norm, though.
Your credit score is determined by several factors, and new credit only makes up 10% of your FICO score. However, your credit utilization ratio makes up 30% of your score, so you could theoretically notice a drastic spike in your credit score (in your favor) if your new card is your only card. Assuming you keep your balance significantly lower than your credit limit, that is.
How much will a secured credit card raise my score?
There’s not a set number when it comes to how much your credit score will increase after using a secured credit card. If you have bad credit, expect to wait approximately 12 to 18 months for your score to increase enough for you to get an unsecured card. If you’re using a secured card to build rather than repair credit, you may see your score increase significantly in 3 to 6 months.
Some cardholders report a noticeable FICO increase after 30 to 60 days. That’s often when a credit card company reports your available credit limit and your first couple payments.
How many secured credit cards should I have?
The number of credit cards you should have varies, so the right number of cards for your best friend or mom might be totally different than the number you need. If you’re recovering from bankruptcy or currently have no credit whatsoever, you may want more cards than someone who just needs a small boost to their FICO score.
But that doesn’t mean you should go crazy with credit card applications. Before you go on a card-collecting spree, make sure that you can afford the security deposits and monthly bills. You should also keep in mind that some companies run hard inquiries, and that can hurt your FICO score for several years.
Can I upgrade to an unsecured credit card if I pay my secured card on time?
With responsible use, it’s definitely possible if your cardholder allows it. Some companies provide a specific timeline for card graduation, while others never convert secured cards to unsecured cards. Capital One Secured MasterCard offers a credit limit increase after just 5 months, so then you have a partially secured card rather than a fully secured card. We’ve also noticed that banks (as in, the kind you visit in person) are often happy to upgrade cards for responsible members.
Even if you have no luck getting an upgrade from your current provider, you may qualify for an unsecured card from a different company after an established history of responsible use.
Common Concerns About Secured Credit Cards
What if I can’t pay my credit card bill?
Contact the credit card company ASAP and let them know what’s going on. Do not wait for them to call you, and don’t just ignore your billing statements. Some companies are willing to work with you (and keep negative marks off your credit report) if you keep them in the loop.
We’ve also noticed that many credit cards for bad credit offer insurance plans that protect cardholders if they become disabled or suffer a serious financial setback. This might be an option for you, but review the terms carefully before you commit to coverage.
What should I do if the credit card company isn’t reporting to the credit bureaus?
Contact the company and ask what’s causing the delay. Sometimes it takes a few months, so don’t panic if you don’t see your card listed on your credit report right away.
You can potentially prevent this issue by choosing a reputable credit card company that’s known for reporting payments. Some companies even advertise the fact that they offer monthly credit bureau updates - look for this info on the application page or in the cardholder agreement.
How do I make sure I get my deposit back?
Follow the guidelines outlined by the company that gave you the secured credit card if you want your deposit back. Many companies require you to keep your account in good standing, which basically just means you need to pay your bill on good time and avoid doing anything illegal with the card.
Your cardholder agreement should specify the procedure you need to follow for a deposit refund. If not, submit a written request via postal mail (go ahead and pay a few extra bucks for delivery confirmation) informing the company that you’d like your deposit back.
Can I rent a car with a secured credit card?
Yes, you can generally rent a car with a secured credit card as long as the purchase price doesn’t exceed your available credit limit. Keep in mind that some companies place an authorization hold for a set amount, such as $300 or $500, on your card. This protects the company if you damage the vehicle, but it can also leave you without access to a large portion of your credit line.
You can also reserve a hotel room with a secured credit card. Like car rental companies, hotels are notorious for placing authorization holds on credit cards - so make sure you’ve got plenty of available funds on your card.
Still confused about secured credit cards? Share your questions below so we can help!