Secured Credit Cards Explained: How They Work and How to Upgrade
How secured credit cards work, what to look for, how to use one to build credit and when to upgrade.
If you're new to credit or rebuilding after past mistakes, a secured credit card is one of the simplest tools available. It works almost exactly like a regular credit card, but it's backed by a deposit you provide, which makes it much easier to get approved. Here's how secured cards work, what to look for and how to graduate to a regular card.
How a secured credit card works
- You apply and, once approved, pay a refundable security deposit. Minimums are often a few hundred dollars.
- Your deposit usually becomes your credit limit. A $300 deposit typically means a $300 limit.
- You use the card for purchases and pay your bill each month, just like any credit card.
- The issuer reports your activity to the credit bureaus, building your credit history.
- You get your deposit back when you close the account in good standing or upgrade to an unsecured card.
The deposit protects the issuer if you don't pay, which is why approval requirements are more flexible than for regular cards.
Secured vs. unsecured vs. prepaid cards
| Secured credit card | Unsecured credit card | Prepaid debit card | |
|---|---|---|---|
| Deposit required | Yes (refundable) | No | You load your own money |
| Builds credit | Yes, if reported to bureaus | Yes | Generally no |
| Approval | Easier | Depends on credit history | No credit check |
| Interest charges | Yes, if you carry a balance | Yes, if you carry a balance | No (but may have fees) |
The key point: prepaid cards usually don't build credit, because you're spending your own money rather than borrowing.
What to look for in a secured card
- Reports to all three credit bureaus (Equifax, Experian and TransUnion). This is essential.
- No annual fee, or a very low one
- A path to upgrade: some issuers automatically review your account after several months of on-time payments and may return your deposit and convert you to an unsecured card.
- Reasonable deposit requirements that fit your budget
- Few extra fees: watch for application, processing or monthly maintenance fees
- Bonus features: some secured cards offer rewards or allow you to raise your limit by adding to your deposit
Watch out for cards that charge high upfront fees or monthly maintenance fees. Many good secured cards have no annual fee at all.
How to use a secured card to build credit fast
- Make a small purchase or two each month, such as a streaming subscription or fuel.
- Pay the full statement balance by the due date with autopay. You'll build credit without paying interest.
- Keep your balance low. On a $300 limit, try to keep the reported balance under $90, and ideally under $30. Low credit utilization helps your score.
- Never miss a payment. Payment history is the largest factor in your score.
- Check your progress with a free credit score in your bank app or a free monitoring service.
When and how to upgrade
After roughly 6 to 12 months of on-time payments, many people are ready for an unsecured card. You can:
- Ask your issuer about graduating your secured card to an unsecured one. This keeps your account history intact and returns your deposit.
- Apply for a new unsecured card once your score has improved. Many issuers offer prequalification with a soft credit check.
If you get a new card, consider keeping the secured card open (if it has no annual fee) to preserve your oldest account. If it has a fee, ask whether it can be converted to a no-fee card first.
Pros and cons
| Pros | Cons |
|---|---|
| Easier approval with no or poor credit | Requires an upfront deposit |
| Builds credit like a regular card | Low credit limits make it easy to use a high percentage of your limit |
| Deposit is refundable | Some cards have fees or high APRs |
| Teaches good card habits | Fewer rewards than many unsecured cards |
For other ways to build credit, see how to build credit from scratch. And to understand the numbers you're working toward, read what is a good credit score?
Bottom line: A secured card is a low-risk way to build or rebuild credit. Choose one with no annual fee that reports to all three bureaus, use it lightly, pay in full every month, and upgrade once your score improves.
Frequently asked questions
Do I get my secured card deposit back?
Yes. The deposit is refundable when you close the account in good standing or when the issuer upgrades you to an unsecured card.
Does a secured card build credit as fast as a regular card?
If the issuer reports to the credit bureaus, a secured card builds credit in the same way as a regular credit card.
How long should I keep a secured card?
Many people upgrade after 6 to 12 months of on-time payments. If the card has no annual fee, keeping it open can help the length of your credit history.
Can I be denied for a secured credit card?
It's possible, for example due to a recent bankruptcy or unverifiable identity, but approval is generally much easier than for unsecured cards.
Disclaimer: This article is for general educational purposes only and isn't personalised financial, tax or legal advice. Consider speaking with a qualified professional about your situation. Read our full disclaimer.