How to Build Credit With a Secured Credit Card

Secured credit cards could help you build or improve your credit.

Laughing women shopping with a credit card
Updated May 21, 2024
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If you have limited, poor, or no credit, you may be eligible for a secured credit card. Secured credit cards require a security deposit. After applying and putting down a security deposit, you may be able to build your credit with responsible card use.

Building your credit could help you upgrade to a traditional, unsecured credit card or qualify for unsecured credit cards from other card issuers. You could then take advantage of better rewards, more perks, and a credit line without a security deposit.

In this article

Key takeaways

  • Secured credit cards require a deposit that is usually equal to your credit line.
  • You could build credit with a secured credit card by making on-time payments, maintaining low credit utilization, and keeping your account open.
  • Choose a secured credit card by looking for important features like low fees, an affordable security deposit, and upgrade options.

How a secured credit card works

A secured credit card is a credit card that requires cardholders to provide a security deposit upfront. These deposits range from $50 to $300. Typically, the security deposit you provide is equal to your credit line to reduce risk for the lender.

Card issuers typically keep your security deposit in a dedicated savings account. If you stop making credit card payments, your issuer may pay off your card with your security deposit.

It’s not unusual to start with a low credit limit, with purchases you make using your card reducing your available credit line. Depending on your credit use and your credit card issuer, you may qualify for a higher credit limit over time.

For example, if you have a $200 security deposit and spend $50, your remaining credit is $150. When you make a $50 payment, your credit limit will be $200 again.

Secured credit cards can be a valuable tool for those looking to build credit or who have bad credit. Card issuers typically report your payment amounts and history to the major credit bureaus, allowing cardholders to build credit with responsible use.

How to build credit with a secured card

A secured credit card could help you build your FICO and other credit scores over time. Follow these steps to get started.

Choose a card

While not as plentiful as unsecured cards, you still have many options when choosing an unsecured card. To choose the right card, look for one that aligns with your goals.

For example, some unsecured cards offer cash back or other rewards. Depending on your financial needs, some cards will be a better fit than others. You’ll also want to consider factors like interest rates, which we discuss in more depth below.

Apply and pay a deposit

Once you have determined the best card to meet your goals, you can apply for the card. You can typically do this online, over the phone, or via the card issuer’s mobile app.

During this step, you will have to provide information like your name, Social Security number, and monthly income. Some companies may conduct a credit check. In some cases, you might receive an approval decision in a matter of seconds.

If you receive approval, your next step is to pay the security deposit, which, in most cases, also determines your line of credit. You then make a deposit via electronic funds transfer or debit to cover your credit line.

Typically, security deposits on secured cards are refundable. You can usually get the deposit back when you close your account or upgrade it to an unsecured card.

Use your card responsibly

The key to building your credit with a secured card is to use the card responsibly. The most important credit score factors are payment history and credit utilization, so these are where you should focus most of your attention.

Your payment history shows whether you have had late payments in the past. Paying your credit card on or before the due date will keep your payment history positive.

Your credit utilization rate is the ratio of your credit balances to your total credit limit. Your utilization for each card is important, as is your utilization across all credit accounts. In either case, you should generally aim for a utilization of 30% or less.

This means that if your credit limit is $300, you should aim to keep your balance at or below $90, which is 30% of $300.

To ensure your history doesn’t show late payments, you can set up automatic payments. Credit card issuers typically allow you to pay the minimum payment amount due, statement balance, or a custom amount once per month. Pay at least the minimum to keep your account in good standing.

You may want to pay more than the minimum to keep your credit utilization low, however.

Monitor your credit

When building your credit, you should also monitor your score periodically. You can request your credit report from Experian, TransUnion, and Equifax once per week on AnnualCreditReport.com.

Alternatively, several credit card issuers, such as Chase and Discover, have free credit monitoring services available. The best part is you don’t have to be an existing customer to use these services.

Keep in mind that it can take time to build your credit. Therefore, checking your credit daily or even weekly may not help you see these positive changes. You may be better off checking monthly or quarterly to see how your credit score is changing.

How to choose a secured card

When choosing an unsecured card, one of the most important considerations is the minimum security deposit. Many unsecured credit cards require at least a $200 security deposit, but the minimum may be lower in some cases.

For instance, the Capital One Platinum Secured Credit Card has security deposits starting at $49 (subject to creditworthiness). Look for security deposit requirements you can afford when choosing a secured credit card.

Also, compare minimum cash deposits, fees, annual percentage rates (APRs), and reward rates. For instance, some secured credit cards have annual fees of around $50. However, there are also secured credit cards with low or no annual fees, so look for those options first.

Even if your main goal is to build credit, you could still earn rewards with a secured card. One example of a secured rewards credit card is the Capital One Quicksilver Secured Cash Rewards Credit Card earns unlimited 1.5% cash back on every purchase, every day; plus unlimited 5% cash back on hotels and rental cars booked through Capital One Travel.

Another good choice is the Discover it® Secured Credit Card, which allows you to earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus earn unlimited 1% cash back on all other purchases. Additionally, Discover will match all the cash back you’ve earned at the end of your first year.

Some secured cards also have foreign transaction fees and returned payment fees. It’s best to look for a card with low or no fees to avoid paying too much.

FAQ

How quickly will a secured card build credit?

It generally takes at least a few months to build credit with a secured credit card. With good habits, you will likely notice bigger changes in about six months. However, it may take longer than this to achieve a good credit score depending on where you’re starting and your overall financial picture.

What are the benefits of secured credit cards?

The main benefit of secured credit cards is that they allow people with lower credit scores or no credit score to be approved for a credit card and to build credit.

Secured cards may have other benefits, including rewards and other benefits and perks. These vary by card, so check with your card issuer for a full list of available benefits.

What are the risks of using a secured credit card?

Some of the main risks of using a secured credit card include trivial fees and lower credit limits when compared to unsecured credit cards. In addition, some secured credit cards may not report to credit bureaus, limiting your ability to build your credit.

Check your card’s fine print before signing up to make sure it has the features you need.

Bottom line

Secured credit cards are a type of credit card designed for those with a limited credit history, fair credit, or poor credit. They typically require a security deposit, which acts as collateral for the card issuer. This covers your credit line, which decreases when you make a purchase.

Secured credit cards often report to the three major credit bureaus, so developing good credit habits could help boost your credit score so you meet your personal finance goals.

Pick a new credit card by comparing fees, minimum security deposits, rewards, and other features. Then, make your payments on time and keep your utilization low. By following these steps, you can use a secured card to build your credit history. Our list of the best secured credit cards could be a good starting point for your search. 

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Author Details

Bob Haegele

Bob Haegele is a seasoned personal finance writer, leveraging his bachelor's degree in information technology from Marquette University to dissect complex financial topics.