Secured Credit Cards

A secured credit card is a type of credit card that is backed by a cash deposit from the cardholder. This deposit acts as collateral on the account, providing the card issuer with security in case the cardholder can’t make payments. With a secured credit card, the amount that you put down in a deposit will become your credit limit for your credit card.

Most credit cards are unsecured, meaning there is nothing guaranteeing or “securing” your ability to pay off your accrued balance, which is money you owe the credit card company. You agree to pay your balance in whole or part each month, but you’re not putting up any of your assets or income to back that promise. That’s one reason why credit card interest rates are so high. Unsecured debt is always more costly than secured debt, such as mortgages or car loans, to compensate for the lack of collateral.

But secured credit cards require you to make a cash deposit on the card as an assurance that you will pay it off. Your deposit becomes your credit limit. These cards are typically approved for people with bad or little credit as a means to build or improve their credit history.

It's rare to get turned down for a secured credit card, but it's possible
if an applicant has a bankruptcy or other derogatory marks on their
credit report. But qualification criteria are generally much lower for
secured credit cards than unsecured, making them an ideal tool for
those trying to build credit history or rebuild their credit.

Secured credit cards are often issued to subprime borrowers, or those with poor or limited credit histories (so-called thin-file borrowers). Because the card issuer will report on secured credit cards to credit reporting agencies, these cards can help borrowers improve
heir credit score.

You can apply for a secured credit card in the same way you would
apply for a regular credit card. They are issued by nearly all of the
leading credit card lenders, like Visa, Mastercard, and Discover, and
look just the same.

Cardholders can use the card anywhere the card brand is accepted and may be eligible for perks and rewards. Cardholders also receive monthly statements showing their end-of-period balances and the activity on the card during the specified month. They’re responsible for paying at least the minimum due, and they pay interest on outstanding balances, which is detailed in the credit agreement.