What is a secured credit card?

How do secured credit cards work?

A secured credit card is a type of credit card that requires a refundable security deposit up front. Unlike an unsecured credit card, where the credit limit is based on your credit profile, a secured card's limit typically matches your security deposit. For example, a $200 deposit would result in a $200 credit limit. This means that people with poor credit or bad credit can potentially obtain a secured card because the security deposit helps offset any risk taken by the issuing bank.

You have to apply for a secured card like any other credit card. But if you’re approved and have the card, you can use it like a traditional credit card to make everyday purchases and help manage your expenses. Just remember, the purchase power is typically limited to the security deposit amount.

What are some benefits of secured credit cards?

Easier approval process

Unlike traditional credit cards, some secured cards don't require a credit check or a specific credit score for approval, which makes them easier to get.

Building credit

Secured credit cards are designed to help people with limited credit history or those with lower credit scores (FICO scores of 580 or below) build credit. It’s best to choose a card that reports to all three major credit bureaus — Equifax, Experian, and TransUnion. That way, you'll never have to wonder what lenders will see when you start applying for different types of credit in the future.

Potential upgrade paths

Depending on the secured card you choose, it can offer a graduation to an unsecured card. This is typically based on responsible usage and the improvement of your credit profile. Upgrading can also help you lock in better credit perks and rewards in the future.

What else do I need to be aware of?

Security deposit requirement

Secured credit cards require a security deposit up front, so determining how much you can afford to put down is crucial. While the deposit is usually refundable, you'll only get it back if you close the account in good standing and your balance is paid in full.

Lower credit limits

Because your credit limit is tied to your security deposit, it will depend on how much you put down upfront. Make sure to keep your spending in check so that you don't reach your limit.

Fees and interest rates

Some secured credit cards may have annual or maintenance fees, but this varies by issuer. Also, some secured cards can have higher interest rates because they're a greater risk to lenders. If it’s possible you may not pay off your full balance at the end of each statement cycle, a card’s interest rate is something you may want to research before applying.

Risk of losing your security deposit

Lenders can use the security deposit to cover an overdue balance if a cardholder defaults on their account. This can also negatively impact the cardholder’s credit score if it's reported to any of the three credit bureaus.

How to choose the right secured card for you

When deciding between credit cards, it's best to choose the one that suits your unique needs and budget. Before applying, be sure to compare security deposit requirements, fees, interest rates (APRs), rewards, and potential upgrade paths.

If you're considering a secured credit card with opensky, applicants for all three of our card options have an 89% approval rate¹. Cardholders typically see an average 47-point increase in their credit score within the first six months².

How to use a secured credit card responsibly

Using your secured card responsibly can boost your credit score and open the door to better credit options and rates for future loans. Here are the actions you can take to ensure you’re set up for success.

1. Make small purchases regularly

Using your secured card regularly and paying off the balance on time is critical to building your credit. To establish good habits, try starting with small purchases, such as paying for a monthly streaming service subscription.

2. Keep your credit utilization low

Your credit utilization ratio is the percentage of your available credit that you use. Aim to use no more than 30% of your overall limit to demonstrate good credit habits and improve your credit score.

3. Pay on time

Always pay your credit card bill on or before the due date. This will help you avoid late fees and negative marks on your credit report.

4. Try to pay your balance in full

Carrying a balance on your card can increase your credit utilization ratio, which might impact your overall score and make it harder to achieve progress. If you can't pay your bill in full each month, pay as much as you’re able and work to pay down the balance as quickly as possible.

5. Monitor your credit

Reviewing your credit score and report can help you track your progress and spot potential errors. You can check your credit report from each of the three major credit bureaus once a year for free at AnnualCreditReport.com.

6. Consider increasing your security deposit

If you have a low credit limit, consider adding more to your security deposit to raise your limit. This can help lower your credit utilization, which positively impacts your credit score. Just be careful not to overspend.

In summary

A secured credit card is a great way to establish good spending habits and build credit when you use it responsibly. While these cards require an upfront security deposit and may come with higher interest rates or limited rewards, they can help you improve your credit. Making regular purchases, keeping your credit utilization low, and paying on time can lead to a better credit score and better credit options.

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¹ Based on Q1 2024, opensky Secured Visa® Credit Card average approval rate is 89.35%. Individual approval results may vary.

² Based on the first half of 2024, 66% of opensky customers increase their score by 47+ points after 6 months.