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What Is a Secured Credit Card and How Can It Help My Credit?

Customer in supermarket making a contactless credit card payment using a POS terminal

If you have no credit or poor credit, a secured credit card can be a very good option for you to soon be on your way to a good credit score. 

  • A secured credit card is a type of credit card that requires a one-time, refundable security deposit from the cardholder. The deposit is used as collateral, which assures the credit card issuer that you can pay your bill when it’s due. The credit limit assigned to your secured card will often be equal or slightly lower to the amount in your deposit.
  • If you miss payments or default on your debt, the credit card issuer may use your deposit to cover those payments.
  • The funds will generally be returned to you when you are approved for an unsecured credit card, or if you close your account, provided you've paid your balance in full.
  • The activity on your secured credit card is reported to the three main credit bureaus (Experian, Equifax, and TransUnion).

If you’re considering a secured credit card, here’s what you need to know.

3 Benefits of a Secured Credit Card

1. Build or Rebuild Your Credit

One of the main advantages of using a secured credit card is its ability to help you build or rebuild your credit. Secured cards report your payment history to all three major credit bureaus, which means that consistent on-time payments can have a direct, positive impact on your credit score.

This shows lenders that you’re capable of managing credit well. As your credit score rises, you can eventually qualify for an unsecured credit card or loans with lower interest rates. 

    2. Develop Strong Financial Habits

    Since the credit limit is tied to your upfront deposit, it encourages you to spend within your means and avoid taking on excessive debt.

    “Try not to overuse your credit line,” says Kellen Burger, Vice President, Consumer Credit and Product Management at Mastercard. “Credit bureaus want to see 30% credit utilization or less.”

    This means you shouldn’t use all of the money available to you each month. While avoiding the temptation to overspend can be tough, this can help you build the discipline needed to pay bills on time and stay within your budget.

      3. Get Perks

      Many secured credit cards come with modest perks. Some offer cash-back rewards, where you earn a percentage of your purchases back, which can be redeemed for money back or other rewards. Others offer travel points for travel-related expenses, such as flights, hotels, and car rentals. They also often come with fraud protections, giving you peace of mind in case your card is lost or stolen. 

        A chart listing the similarities and differences between secure and unsecured credit cards.

        3 Considerations Before Getting a Secured Card

        1. Fees

        Before getting a secured credit card, look into the fees associated with the card. Many secured credit cards may charge annual fees, setup fees, or monthly maintenance fees.

        These fees can add up over time, so it’s essential to shop around and compare different options. It’s important to understand all the components up front of what is required to get access to a secured card.

          2. High Interest Rates

          Secured cards often come with high interest rates. This means that if you carry a balance from month to month without paying it off, you could end up with extra charges. The average annual percentage rate on a new secured credit card might be around 24%.

          To avoid this, try to pay off your balance in full each month. If you can't pay off the full balance, pay more than the minimum payment to reduce interest charges and prevent debt from accumulating. 

            3. Deposit Requirements

            Another factor to consider is the deposit required to open a secured credit card. While this deposit is usually refunded to you when you upgrade to an unsecured card (or close the account in good standing), it could be a financial burden for some people.

            Deposits will vary by the financial institution, but a minimum amount can range from as low as $200 to as high as $5,000, although most are between $200 and $750.

            If you're on a tight budget, make sure that the deposit amount is manageable for your finances.

              What to Look for When Shopping for a Secured Card

              Do your research on different card issuers and compare each to make sure you’re getting the best deal possible for your needs. Below is an example of an ideal secured credit card offer: 

                A list of ideal offer terms for a secured credit card.

                “Remember that it’s not just a credit card, you’re also establishing a relationship with a financial institution,” says Neko Ennis, Product and Partnership Marketer at Mastercard. “See if that institution aligns with your goals and objectives so they can further support you in the future with higher-tier products.”

                Once you’ve picked a card carrier that works for you, you’ll need to apply online. Typically, you can expect to receive a decision immediately after applying.

                As long as you use the card responsibly—by making on-time payments and avoiding overspending—you can reap the benefits of increased credit scores and more financial flexibility. It’s a practical, manageable way to take control of your finances, especially if you're starting fresh or rebuilding after a setback. 

                  About Master Your Card

                  Master Your Card is a community empowerment education program sponsored by Mastercard, that works with committed partners nationwide to bring information about the benefits of electronic payments technology for underserved communities to build brighter financial futures. The program has facilitated presentations and workshops in numerous cities around the country, provided financial education to tens of thousands of students and reached millions through partners’ initiatives and education materials. 

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