What Is a Secured Credit Card and How Can It Help Me Build Credit?


Establishing and building your credit can be tricky, especially if you don’t have a lengthy credit history or if you have a bad credit score. If you’ve never had a credit card, traditional credit card companies might deny your application due to your status as a borrower with no proven history of on-time payments.

Fortunately, you don’t need an exceptional credit score to apply for secured credit cards. With the right spending strategy, you can use a secured credit card to boost your credit score and work your way toward lower-interest unsecured cards.

What Is a Secured Credit Card?

Secured cards offer a modest line of credit to help you increase your credit score in as little as a few months.

Unlike conventional credit cards, you must pay a security deposit to your issuer in cash before you can start spending. Most companies require these security deposits to match an agreed-upon credit limit, serving as collateral.

If you fail to make your credit card payment, the credit card issuer takes the funds out of your security deposit. Think of a secured card like a debit card: You’re spending money you already have, not borrowing and paying it back.

Secured credit cards may have higher interest rates to discourage you from overspending and defaulting at the end of the pay cycle.

What to Expect Before You Apply for a Secured Credit Card

Qualifying for a secured credit card is usually easier than for standard credit cards. Security deposits eliminate much of the lender’s financial risk, encouraging them to accept applicants with bad credit.

Some lenders allow you to deposit $100 or less, while others require $500 or more.

Once you establish a credit limit with your lender, you can use your secured credit card to pay for goods and services, just like a debit card or standard credit card. Lenders may report your payments to credit bureaus multiple times a month or at the end of the billing cycle. If you pay your bill on time, you’ll see your credit score increase slowly.

How Secured Cards Differ from Unsecured Cards

Secured credit cards are similar to conventional, unsecured credit cards—with a few caveats.

First, you assume most of the borrowing risk with a secured credit card. If you default on your payments, your lender will compensate themself using your money. In contrast, lenders carry most of the financial risk when issuing standard credit cards without collateral.

Standard unsecured credit cards typically have lower interest rates, depending on your chosen lender. Most lenders issue credit cards at 12% to 22% interest. If you have a good credit score, you may qualify for credit cards with 10% interest or less at banks or other financial institutions.

Lenders usually issue secured credit cards at 33% interest or higher.

How You Can Use Your Secured Credit Card to Build Credit

The best way to build credit is by making on-time payments and chipping away at your debt. Secured credit cards help you achieve these goals by incentivizing you to spend money on day-to-day expenses you know you can pay off at the end of the month.

Keep an eye on your budget to avoid spending more than you can afford. It may be wise to estimate your monthly expenses to prevent accidental overspending.

Using a secured credit card may help you qualify for additional lines of credit in the future. This method extends your credit history and lowers your credit utilization ratio—the amount of money you owe your lender divided by the agreed-upon credit limit. If you regularly pay off your secured card. You could see significant improvement in your credit score after just six months.

You should avoid carrying a secured credit card balance from one month to another, especially if your credit card has a high-interest rate. Pay off your purchases as soon as you make them or at least by the end of the billing period to avoid paying interest and to keep your monthly balance at a minimum.

Secured Credit Card vs Unsecured Credit Card: Which Is Right for You?

Consider applying for secured credit cards if you don’t have many lines of credit open or your credit score is poor. Use this method for at least six to twelve months before closing your account and receiving your deposit back. Some credit card issuers may allow you to convert your funds to an unsecured credit card if you stay with the same lender.

On the other hand, applying for a standard credit card may be the most practical choice if you have a moderate to high credit score with several open accounts. You don’t need to save money upfront for this building credit solution, and you can generally enjoy higher borrowing limits.

Things to Consider When Applying for a Secured Credit Card

Double check that your secured credit card issuer reports reports your positive payment activity. If they don’t, you won’t see any changes to your credit score from your account.

It’s also a good rule of thumb to avoid lenders with high deposit limits if you are on a budget. Even using a card with a low credit limit, such as $100 to $300, can boost your credit score over time. Some lenders may be willing to negotiate your credit limit when you sign up.

Spend time reading the terms and conditions of any lender you consider. This method helps you avoid additional fees or refund policies that may land you into credit card debt. It also may help to find a lender that offers cash back or other spending perks if you exceed a certain dollar amount.

Start Your Credit-Building Journey with a Secured Credit Card

Ready to apply for a secured credit card and start building (or re-building) your credit? You can apply for a secured card online in just a few steps to start your credit-building journey without the risk of overspending that you’d get with traditional unsecured credit cards.

Contact Boost Your Score at 1-800-259-1270 to sign up today!

Disclaimer: Boost Your Score does not offer financial advice. The information presented on this page is intended for general consumer awareness and does not constitute legal, financial, or regulatory counsel. This content does not represent the perspectives of any issuing banks. While the information might include third-party references or content, Boost Your Score does not validate or guarantee the third-party information's precision. Internal links are promotional content for Boost Your Score products. Please take into account the publication date of Boost Your Score's original content and any related content to fully grasp their contexts.

Posted in
Boost Your Score

Boost Your Score

The team at Boost Your Score has over 50 years of combined experience in credit building. Our goal is to help individuals take control of their financial destiny and improve their credit scores. We provide guidance and support regardless of your credit history, whether you're just starting your credit journey or looking to take your score to the next level.

Leave a Comment