What is a Secured Credit Card? How Do They Work?

If you have bad credit, you might want to check out a secured credit card. This is a type of credit card that is backed by a cash deposit from the cardholder, which reduces the risk to the issuer. When used responsibly, secured cards can give you an opportunity to build or rebuild your credit.

To those with bad or no credit, be sure to keep reading to learn more about secured credit cards and how they work.

What is a Secured Credit Card?

A secured credit card is a type of credit card that requires a cash deposit from the cardholder, which acts as collateral on the account, providing the card issuer with security in case the cardholder can’t make payments. Additionally, it’s designed for those seeking to build or rebuild credit.

Furthermore, the issuer of a secured card may share your activity, such as your monthly payment history, with the major credit bureaus — Experian, Equifax® and TransUnion®. Because of this, you can build a credit history, improve your credit health, and eventually upgrade to an unsecured no-deposit card.

How Secured Credit Cards Work

Most credit cards are unsecured, which means there is nothing guaranteeing your ability to pay off your accrued balance, which is basically money you owe the credit card company. With an unsecured credit card, you are agreeing to pay a specific balance each month, but you’re not putting up any of your assets or income to back that promise.

On the other hand, secured credit cards require you to put up something as part of your agreement with the card company. When you apply for it, the card issuer assesses your credit score and credit history through a hard inquiry with a credit reporting agency. After that, it then determines the amount of deposit needed to open an account and the credit line that will be extended.

Once you pay the initial deposit, secured cards work just like unsecured ones:

• They can be used wherever credit cards are accepted, including online
• You incur interest if you carry a balance
• Additionally, you can build or rebuild your credit by using the card responsibly and paying your balance on time

How to Use a Secured Credit Card Effectively

Secured credit cards are great if you need to build or rebuild your credit. However, it is important to know how to use it effectively.

• Use the card sparingly, making only one or two small purchases every month
• Pay your balance in full every month before the due date. When you pay in full, you won’t be charged interest. Interest rates on secured cards are generally higher than those on unsecured cards.
• Furthermore, keep an eye on your credit score over time; when it has meaningfully improved, ask your issuer about upgrading to an unsecured card.

Author’s Verdict

Although secured cards usually require a deposit and may not offer the best APRs, they can be helpful for those having trouble getting approved for a traditional credit card. Using a secured card can help you establish credit, which may help you qualify for an unsecured card eventually.

In addition, we have a list of bank promotions to get some extra cash in your pockets today. You may also want to check out savings accounts if you want to get started on saving up money.

Huntington Bank Bonuses & Promotions: $100, $400, $1,000 Checking Offers 2025

Chase Coupon Codes 2025 ($100, $200, $300, $400, $500, $700, $2000 Checking Bonuses)

Discover Bank Promotions: $150/$200 Savings Bonus, $360 Cashback Debit Bonus, Up to 4.10% APY for 2025

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