What Is a Secured Credit Card and How Does It Work?

A secured credit card is a card that requires you to make a cash deposit as collateral when you open the account. The deposit is an insurance policy for the credit card company in case you can’t make your payments or default on paying back your balance.

If you use your secured credit responsibly, you can expect your credit score to increase. The secured credit card issuer may allow you to upgrade to an unsecured credit card; if not, you can apply for a credit card elsewhere once your credit score is strong enough.

Security deposit requirements

The opening deposit amount needed for a secured credit card varies by card issuer. Typically, the deposit is equal to your credit limit on that card.

For example, if you open a secured credit card with a $500 deposit, your credit limit might also be $500.

Credit score requirements

The deposit reduces the risk for the credit card company. In other words, if you don’t pay your bill, the issuer can take the money from your deposit to get their funds back.

This is a major reason secured credit cards are available to people with poor or no credit. Often, borrowers with bad credit can’t get approved for any other type of credit card.