Secured credit card

A credit card backed by a cash deposit that usually sets your limit, designed to help people build or rebuild credit.

What it means

With a secured card, you pay a refundable security deposit, and the credit limit typically equals that deposit. The card works like any other credit card: purchases are billed monthly, interest applies to carried balances, and payment activity is reported to the credit bureaus, which helps build a credit history.

Because the deposit protects the lender, secured cards are easier to get with limited or damaged credit. Many issuers review accounts periodically and may graduate responsible users to an unsecured card and return the deposit. It is important to confirm that the card reports to all three major credit bureaus and to check its fees.

Example

For example, someone deposits $500 and gets a $500 limit. They charge about $100 a month and pay it in full, keeping utilization near 20%. After a year of on-time payments, the issuer may offer an unsecured card and refund the deposit.

How it’s used

Building credit with no history
Rebuilding after late payments or bankruptcy
Getting a card when unsecured applications are denied

Strengths and weaknesses

Strengths

Easier approval than unsecured cards
Builds credit with on-time payments
Deposit is usually refundable

Weaknesses

Requires tying up cash as a deposit
Low limits make utilization rise quickly
Some carry high fees or APRs

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.