Secured Credit Cards
The Balance’s Guide to Secured Credit Cards
Frequently Asked Questions
What is a secured credit card?
A secured credit card is a lot like a regular credit card—you can make purchases with it, and later pay for them with a monthly bill. The major difference is that you're required to make a deposit against the card's credit limit. Your credit limit will usually be a percentage of your security deposit, or it may be the same as your deposit.
How long does it take to build credit with a secured credit card?
With responsible use of your secured credit card you should begin to see credit score improvements relatively soon, but there are no guarantees. You’ll get the best results by paying your balance in full every month, keeping your card balance low throughout the month, and paying consistently on time, month after month. Most secured card issuers will upgrade a secured account to an unsecured account after a year or two of responsible use (and sometimes sooner).
How do you get a secured credit card?
The application process for a secured credit card is a lot like the process for a regular or unsecured credit card—with one big difference. You’ll provide income and other details on an application, but you’ll also be asked to leave a security deposit (and probably an application fee). The deposit can be as little as a few hundred dollars all the way up to several thousand and it will most likely be your credit limit.
How does a secured credit card work?
Secured credit cards are a lot like traditional or unsecured credit cards. You can use them to make purchases, which you’ll pay for through a monthly bill. Meanwhile, the card’s issuer will report your account balance and payment activity to the major credit bureaus (ideally all three of them). The difference is that a secured credit card requires the cardholder to leave a cash security deposit (which is often the card’s credit limit). The deposit protects the lender in case the cardholder defaults or fails to pay.
Secured loans (or “secured debt”) are loans that require property or assets to be pledged against the loan to protect the lender. Not every loan needs collateral but in some instances, it’s required. Collateral can be an asset, money, property, or something else.
A security deposit is usually part of opening a secured credit card account. These cards require a cash deposit for opening, which typically serves as your credit limit.
Unsecured loans (or “unsecured debt”) are loans that are approved without the need for collateral. If a borrower fails to repay on the loan, the lender is left with few options to get paid outside of filing a lawsuit.
A credit score is a number that evaluates and rates your creditworthiness based on your credit history. Lenders use credit scores to decide whether to approve someone for a loan or credit card and to determine what interest rate to charge.
Your credit report contains a wealth of information about your financial history and actions. If you have credit or loan accounts, those accounts and how you pay them are included in your credit report. It’s important to review your credit report at least once a year so you know what your creditors are saying about you.
Revolving credit is a type of credit that can be used repeatedly up to a certain limit as long as the account is open and payments are made on time. With revolving credit, the amount of available credit, the balance, and the minimum payment can go up and down depending on the purchases and payments made to the account
Credit Utilization Ratio
Your credit utilization ratio compares your credit card balances to your credit limits. In other words, it's how much you're currently borrowing compared to how much you could borrow.
Annual Percentage Rate (APR)
The annual percentage rate (APR) of a loan is the total amount of interest you pay each year. This is calculated before compounding interest is taken into account. APR represented as a percentage of the loan balance.
Most credit cards allow for a grace period, which is the amount of time you have to pay your balance in full without incurring a finance charge. The grace period usually starts on the first day of the billing cycle and ends a certain number of days later.
A credit bureau is a company that collects and maintains individual credit information and sells it to lenders, creditors, and consumers in the form of a credit report. While there are dozens of credit bureaus across the U.S., most consumers are familiar with the big three: Equifax, Experian, and TransUnion.