What a secured credit card is and how it works
A secured credit card is a credit card backed by cash you deposit with the card issuer. You put money into a savings account held by the bank — typically between $200 and $2,500 — and that deposit becomes your credit limit. You then use the card like any other credit card: make purchases, receive a bill, and pay it back each month.
The deposit stays in the bank's account the whole time you hold the card. It is not spent when you use the card. Instead, the bank holds it as collateral — protection for them if you stop paying your bills. Because the bank's risk is lower, secured cards are available to people with no credit history, poor credit, or a recent negative event like a bankruptcy or missed payments.
The main reason to get a secured card is to build or rebuild your credit history. Every payment you make gets reported to the three major credit bureaus — Equifax, Experian, and TransUnion — so on-time payments gradually raise your credit score. After 6 to 18 months of responsible use, many issuers will convert your secured card to a regular unsecured card and return your deposit.
Key Takeaways
- You must deposit cash with the bank to open a secured card, and that deposit becomes your credit limit.
- Secured cards report to all three credit bureaus, so consistent on-time payments build your credit score over time.
- Most banks charge an annual fee ($25 to $95 is typical) plus interest on any balance you carry, so paying in full each month keeps costs down.
- After 6 to 18 months of on-time payments, many issuers will convert your card to unsecured and return your deposit.
- You can compare secured cards by deposit requirement, annual fee, interest rate, and whether the issuer reports to all three credit bureaus.
Where to get a secured credit card
Most major banks and credit unions offer secured cards. Common issuers include Capital One, Discover, U.S. Bank, Wells Fargo, and Chime. Credit unions often have lower fees and deposit minimums than national banks, so if you belong to a credit union, start there.
You can also find secured cards through online banks like Varo or LendingClub. Online applications are usually faster than in-person, and you can often see whether you will be approved before you formally submit. Many banks let you open the card and fund your deposit entirely online.
Before you apply anywhere, compare the terms across at least three issuers. The deposit requirement, annual fee, and interest rate vary significantly. A card with a $200 minimum deposit and a $35 annual fee is very different from one requiring $2,500 with a $95 fee.
What you need to open a secured card
You will need a Social Security number, a government-issued ID, and proof of income or employment. Most banks also require a U.S. mailing address and a bank account to fund the deposit. Some issuers ask for a phone number and email address during the application.
If you have no credit history at all, the bank may ask for additional proof of identity or may require a larger deposit. If you have had credit problems, be honest about them — many secured card issuers specifically work with people rebuilding credit and will not penalize you for past issues as long as you are not currently in active default or bankruptcy.
You do not need to have perfect finances to open a secured card. You do not need a job, though most banks ask for some source of income. You do not need to own a home or have savings beyond the deposit itself.
The costs of a secured credit card
Every secured card has an annual fee, which ranges from $0 to $95 depending on the issuer. Some cards charge no annual fee but have a higher interest rate. Others charge both an annual fee and interest. Read the terms carefully — the cheapest upfront option is not always the cheapest over time.
If you carry a balance from month to month, you will also pay interest. The interest rate on secured cards is typically higher than on regular cards — often 18% to 24% annually. The best way to avoid this cost is to pay your full balance each month. If you cannot pay in full, pay as much as you can, because interest compounds daily.
Some issuers charge additional fees for late payments, returned checks, or going over your limit. Read the fee schedule before you apply so you know what to expect.
How to use a secured card to build credit
Once your card arrives, use it for small, regular purchases — groceries, gas, a subscription service — and pay the full balance every month. This shows lenders that you can borrow money and repay it reliably. Credit bureaus care most about payment history, so on-time payments matter far more than how much you spend.
Keep your balance low relative to your credit limit. If your limit is $500, try to keep your balance under $50 to $100 before you pay it off. This ratio — called your utilization rate — affects your credit score. Using less than 10% of your available credit is ideal.
Do not close the card once it converts to unsecured or once your credit improves. Closing old accounts can hurt your score because it reduces your total available credit and shortens your credit history. Keep the card open and use it occasionally, even if you switch to a different card for everyday purchases.
When your secured card converts to unsecured
Most issuers will convert your card to a regular unsecured card after you have made on-time payments for 6 to 18 months. The bank will review your account and contact you — you do not have to ask. When conversion happens, your deposit is returned to your bank account, usually within 5 to 10 business days.
Conversion is not automatic. The bank looks at your payment history, how long you have held the card, and your current credit score. If you have missed even one payment, conversion may be delayed. If you have made every payment on time and your credit score has improved, conversion usually happens on the faster end of that range.
After conversion, your credit limit may stay the same or increase. Some banks raise your limit as a reward for good behavior. Others keep it at the original amount. You can ask the issuer to raise your limit after conversion, and they may do so based on your improved credit history.
Secured cards versus other credit-building options
A credit-builder loan is another way to build credit. You borrow a small amount (usually $300 to $1,000) from a credit union or bank, and the money goes into a savings account you cannot touch. You make monthly payments, and once you have paid off the loan, you get the money. This builds payment history without the temptation to overspend, but it takes longer — typically 12 to 24 months — and you do not have access to credit during that time.
A secured loan works similarly but is larger and may require a longer repayment period. A becoming an authorized user on someone else's credit card can also help if that person has good credit and makes on-time payments, but you have no control over the account and the benefit depends on the card issuer reporting authorized users to the bureaus.
A secured credit card is usually the fastest and most flexible option because you can use it immediately, you control the spending, and conversion to unsecured happens relatively quickly if you pay on time.
Frequently Asked Questions
Will getting a secured card hurt my credit score?
Opening any new credit account causes a small, temporary dip in your score — usually 5 to 10 points — because the bank runs a hard inquiry. This dip fades within a few months. The benefit of on-time payments over those months will outweigh the initial drop, so your score should be higher after 6 months than it was before you opened the card.
Can I use a secured card to pay bills or buy things online?
Yes. A secured card works exactly like a regular credit card for purchases. You can use it online, in stores, and over the phone. Some issuers may have limits on certain types of transactions, so check your cardholder agreement, but most secured cards have no restrictions on where you can spend.
What happens if I miss a payment on a secured card?
A missed payment will be reported to the credit bureaus and will damage your credit score. The bank may also charge a late fee. If you miss payments repeatedly, the bank may close your account and keep your deposit to cover what you owe. If you are struggling to pay, contact the issuer immediately — some offer hardship programs or payment deferrals.
Can I increase my credit limit on a secured card?
Yes, but usually only by depositing more money. If you want to raise your limit from $500 to $1,000, you would deposit an additional $500. Some issuers allow this after a few months of on-time payments. A few issuers will raise your limit without an additional deposit after you have shown a strong payment history, so ask your bank what their policy is.
How long does it take to build credit with a secured card?
You will see movement in your credit score within 30 to 60 days of opening the card and making your first on-time payment. Significant improvement — enough to move from poor to fair or fair to good — typically takes 6 to 12 months of consistent on-time payments. The longer your history of on-time payments, the more your score improves.