Secured Credit Cards: A Powerful Solution for Poor Credit
Here are three things to remember from this article:
- A secured credit card is one of the most reliable ways to rebuild credit because it reports to the credit bureaus just like a traditional card (as long as you make on-time payments).
- The deposit is refundable but not applied to your purchases. You still need to pay your bill each month. Once you upgrade to an unsecured card or close the account with no balance, your deposit is returned.
- Responsible use leads to progress. Keeping balances low and paying your bills time can raise your credit score within months and open the door to better credit options.
What You Should Know About Secured Credit Cards for Bad Credit
If you have poor credit, a secured credit card for bad credit can be one of the most effective ways to start rebuilding. These cards require a refundable security deposit before activation, usually equal to your credit limit. From there, you use the account just like any other credit card: making purchases, paying your bill, and having your history reported to the credit bureaus.
Here’s a list of
credit card offers that are currently approving our clients.
How Secured Credit Cards Work
Let’s say you open a secured credit card with a $500 limit. To activate it, you first deposit $500. If you spend $200, you’ll still need to pay that $200 bill on time. The deposit does not cover your spending. Rather, it serves as collateral for the bank.
If you miss payments, late fees and interest apply, and negative marks are reported to the credit bureaus. The bank may eventually keep your deposit, but only after trying to collect from you and potentially sending the account to collections.
The Difference Between Secured and Traditional Credit Cards
Secured credit cards require you to pay now, buy later, and then pay again, while traditional cards allow you to buy now and pay later. This distinction makes secured credit cards more expensive up front. From a credit-scoring perspective, though, secured cards can be more accessible to people with bad credit who might not otherwise qualify for a credit cards. In other words, secured credit cards routinely approve people with poor credit scores.
Upgrading From a Secured to an Unsecured Card
With consistent on-time payments and responsible use, many issuers allow you to upgrade your secured credit card for bad credit to an unsecured version. When that happens, or if you close the account with no balance, your deposit will be refunded.
See which secured credit cards are currently approving applicants like you.
Why Secured Credit Cards Are Worth It
Secured credit cards can feel expensive because of high interest rates and the upfront deposit. Still, they serve two important purposes:
- They help rebuild credit. People with poor credit often can’t qualify for traditional cards, so secured credit cards provide a way to show positive history. In this sense, they function similarly to being added as an authorized user.
- They’re often required for everyday services. Many companies, from cell phone providers to rental agencies, require customers to have an active credit card.
What Are the Best Practices for Building Credit With a Secured Card?
To get the most benefit:
- Keep your balance under 30% of your credit limit.
- Always make payments on time.
- Monitor your score and ask your issuer when you can upgrade.
With responsible use, a secured credit card for bad credit can help you rebuild within months and eventually open doors to better credit opportunities.
Check out this list of secured credit card offers.
Frequently Asked Questions
1. What are secured credit cards?
2. Do I get my deposit back on a secured credit card?
3. What happens if I stop paying my secured credit card?
4. Can a secured credit card be declined even if I pay the deposit?
5. How long should I keep a secured credit card before applying for an unsecured credit card?
6. Can I upgrade my secured credit card without reapplying?
7. Do secured credit cards have credit limits higher than my deposit?
FAQ: What are secured credit cards?
A secured credit card works like a traditional credit card, but it requires a refundable security deposit upfront. The deposit usually sets your credit limit. For example, a $300 deposit gives you a $300 limit. The deposit does not cover your spending. Rather, it serves as collateral for the bank.
If you miss payments, late fees and interest apply, and negative marks are reported to the credit bureaus. The bank may eventually keep your deposit, but only after trying to collect from you and potentially sending the account to collections. On the other hand, if you make payments on time, your payments will be reported to the credit bureaus, which helps you rebuild credit.
Secured cards are different from prepaid cards, which do not report to the credit bureaus and therefore won’t help your score.
For a list of our top recommended secured credit cards, see this list of credit card offers currently approving our clients.
FAQ: Do I get my deposit back on a secured credit card?
Yes, as long as your account is in good standing, you will receive your deposit back on a secured credit card. When you close the account or upgrade to an unsecured credit card, the bank refunds your deposit. The key is that your balance must be paid in full. If you default, the credit card company will keep all or part of your deposit.
Some issuers, like Capital One and Discover, automatically review your account after several months and may upgrade you without requiring a new application.
FAQ: What happens if I stop paying my secured credit card?
Missing payments on a secured card has the same impact as missing payments on any other credit card: late fees, damage to your credit score, and possible collections. You will also very likely lose your deposit in part or in full if you miss a payment. In other words, your payment history on secured credit card offers matters as much as it does on any traditional credit card.
If you default, the bank may keep your deposit, close your account, and send the remaining balance to collections.
FAQ: Can a secured credit card be declined even if I pay the deposit?
Yes, even though you’re providing a deposit, some secured credit card companies will still decline your application. If your debt-to-income ratio is very high, or if you have recent bankruptcies, you may be denied by companies that check your income and overall application.
If your application has been denied, see this list of credit card offers currently approving our clients.
FAQ: How long should I keep a secured credit card before applying for an unsecured card?
Most people keep a secured card for 6–12 months before qualifying for a traditional, unsecured offer. Some issuers automatically review your account after a set period, while others require you to reapply. Either way, the key to being approved for a traditional, unsecured offer is to show consistent, on-time payments and keep your balances low.
FAQ: Can I upgrade my secured credit card without reapplying?
In some but not all cases, you can upgrade your secured credit card without reapplying. Some issuers (like Discover and Capital One) periodically review your account. If you’ve paid on time and managed your balance well, they may upgrade you to an unsecured card and refund your deposit. That said, some secured credit cards require proactivity, meaning you will have to reapply for the upgraded, traditional version.
FAQ: Do secured credit cards have credit limits higher than my deposit?
Generally, the limit on a secured credit card equals your deposit. For example, if you deposit $500, you will typically have a $500 limit. However, some issuers increase your credit limit over time without requiring an additional deposit if you consistently pay on time.
