Secured Credit Card
A credit card backed by a cash deposit that serves as collateral, designed for people building or rebuilding credit history.
What is Secured Credit Card?
A secured credit card requires the cardholder to make a cash deposit — typically $200–$2,500 — which becomes the credit limit and serves as collateral for the issuer. Unlike a prepaid debit card, a secured credit card reports payment activity to the three major credit bureaus (Equifax, Experian, TransUnion), allowing cardholders to build or rebuild their credit score through responsible use. Secured cards are widely used by people with no credit history (new to credit, recent immigrants), those recovering from bankruptcy, or individuals rebuilding after missed payments. Key best practices: make small purchases each month (keep utilization below 30% of the limit), pay the full balance on time every month, and choose a card that reports to all three bureaus. After 6–12 months of responsible use, many issuers offer an upgrade to an unsecured card and return the deposit. Secured cards often carry higher interest rates and annual fees than standard unsecured cards.
Example
A recent college graduate with no credit history deposits $500 to open a secured credit card with a $500 limit. She charges $100 each month (20% utilization) and pays the full balance on time. After 12 months, her FICO score has risen from 'no score' to approximately 680 — enough to qualify for an unsecured card, an auto loan, and eventually a mortgage with a competitive interest rate.