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What is a Secured Credit Card?

The biggest difference between a secured and an unsecured credit card is that secured cards typically require a security deposit from the cardholder, which functions as a cash collateral against you defaulting on your payments.


Secured credit cards are especially useful for consumers with poor or little to no credit history who are typically declined for unsecured credit cards. A Secured card can almost guarantee approval by the lending institution because, in effect, you are the one taking on the financial risk through your security deposit.


This of a secured card as your credit line "training wheels" that allow you the benefits of owning a credit card while giving you the opportunity to build a history of responsible credit use with on-time payments. The small credit and security deposit requirements are there to protect you from getting yourself into the poor payment history that may plagued you in the past.


Secured card credit limits are often set at the amount of the security deposit or some percentage of it so that you cannot charge more than your security deposit can cover. Depending on your specific secured card, adding more to your security deposit enables you to access a higher credit limit, or if your payments are on-time and consistent, the credit card company may reward you by increasing your credit line without requiring additional deposits.


Many secured cards increase the credit limit of you secured card after 6-12 months of responsible use and on-time payments.

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