What Is a Secured Credit Card? How It Works

Building or rebuilding credit can feel like climbing a steep hill, especially when lenders keep saying “no.” That’s where secured credit cards can step in, offering a way to prove your financial responsibility while keeping your risks (and theirs) in check. 

But how do they work, and are they really worth it? Let’s break it down so you can decide if a secured card is your next best financial move.

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Explore credit card options tailored to different needs and preferences.

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What are secured credit cards?

Secured credit cards might sound like some secret financial tool, but they’re actually pretty straightforward. A secured credit card is a type of credit card that requires a security deposit upfront. This deposit acts as collateral for the card issuer and typically sets your credit limit.

Here’s why this matters: if you have a limited or poor credit history (or a very low or no credit score), a secured card provides a low-risk way to show lenders that you can handle credit responsibly. Unlike a debit card or prepaid card, a secured card helps build your credit because it reports your activity to the major credit bureaus — Experian, Equifax, and TransUnion.

Think of secured credit cards as a stepping stone to better financial opportunities as you build or rebuild your credit. While you may not get flashy rewards or sky-high limits, you’re opening doors to unsecured cards, loans, and better interest rates down the line.

How does a secured credit card work?

When you open a secured credit card, you’ll provide a security deposit — typically starting at around $200, but it varies by card. This deposit reduces risk for the issuer and gives you access to a line of credit equal to your deposit.

• Your transactions are reported to major credit bureaus, helping you establish credit history.
• You’ll make monthly payments, just like with an unsecured credit card.
• Responsible use can help transition to unsecured credit cards over time.

What is the difference between a secured and unsecured credit card?

Here’s a quick comparison of secured vs unsecured credit cards:

Secured credit cards	Unsecured credit cards
Require a security deposit.	No deposit required.
Ideal for building or repairing credit.	Approval based on your credit score, income and other factors.
Lower credit limits.	Higher credit limits and rewards programs.

When should you consider a secured credit card?

If you’re on the fence about whether a secured credit card is right for you, consider this: these cards are designed with specific users in mind. Whether you’re starting fresh, rebuilding after a financial rough patch, or simply looking for a way to prove your creditworthiness, a secured card might just be your ticket to a stronger financial future.

A secured credit card can be a game-changer if:

• You have a low or no credit score.
• You’ve been denied an unsecured credit card.
• You want to rebuild credit after financial setbacks.

Pros and cons of secured credit cards

While secured credit cards are a fantastic tool for certain people, they’re not perfect for everyone. These cards offer plenty of benefits, but they also come with a few limitations that might not work for your financial situation.

So, who benefits most from a secured card? People looking to establish or rebuild their credit without taking on unnecessary risk. If that sounds like you, here’s a quick look at the advantages and disadvantages to help you make an informed choice.

Pros	Cons
Looser credit requirements: Got a less-than-stellar credit history? No problem. Secured credit cards are designed for people with bad or no credit, making them accessible to more users.	Requires a security deposit: You’ll need cash upfront — often at least a few hundred dollars. This can be a hurdle for some.
Reporting to credit bureaus: This is the secret sauce for building credit. As long as you pay on time, you could see your credit score climb.	Higher fees and interest rates: Some secured cards come with annual fees, and interest rates can be steeper than those on unsecured cards.
Potential to transition to an unsecured card: Some issuers let you upgrade to an unsecured card after you’ve proven your creditworthiness.	Limited credit limit: Your spending power is tied to your deposit, so you won’t have a lot of wiggle room.

How to apply for a secured credit card

Applying for a secured credit card is easier than you think. Here’s how to get started:

• Research different secured credit card options: Not all secured cards are created equal. Look for ones with low fees, reasonable deposit requirements, and credit bureau reporting.
• Check the eligibility requirements for each card: Most issuers have basic criteria like being at least 18 and having a valid ID and SSN.

• Gather necessary documentation: Be prepared to provide proof of income and identity.
• Make an initial security deposit: Ensure you have enough funds for the required deposit.
• Complete the application form: This can be done online or in-person. 

• Submit the application: Wait for approval, which can be instant or take several days or more to process. 
• Activate your card: Once approved, fire up  your card by phone or online and start using it (responsibly, of course!).

How to build credit with a secured credit card

Using a secured credit card strategically has the potential to do wonders for your credit score. Here’s how:

• Control your spending: Aim to use no more than 30% of your credit limit (many lenders consider a credit utilization ratio over 30% to be high). For example, if your limit is $300, keep your spending under $90.
• Make more than the minimum payment: Paying in full (or as much as you can over the minimum payment) shows financial responsibility and helps you avoid interest charges.
• Set payment reminders: Late payments could hurt your credit score, so set alerts to stay on track.

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MoneyLion offers a free and convenient way to find offers from our trusted partners to help you improve your credit — such as credit monitoring, credit report disputes, and getting credit by paying bills. A good credit score can lead to lower interest rates and increased borrowing power on loans and credit cards.

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The First Step Is the Most Important 

A secured credit card isn’t just a tool — it’s a launchpad for better financial opportunities. Whether you’re starting fresh or rebuilding, understanding how to use a secured credit card can help you unlock the door to a brighter credit future. Explore MoneyLion’s credit-building tools today.

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