What is a secured credit card and how does it work?

When used responsibly, a secured credit card can be a great tool to help you build good credit. But before you apply, it may help to learn more about secured credit cards, how they work and the benefits they can offer.

What you’ll learn:

• A secured credit card may be a good option for people looking to establish or build their credit.

• To open a secured credit card account, a cardholder typically makes a one-time refundable security deposit.

• Secured card credit limits vary. Depending on the card issuer, the limit may be the same amount as the deposit or higher.

A secured credit card is a type of credit card that requires a refundable security deposit to open the account. The cardholder typically makes a one-time deposit that acts as collateral for the credit card issuer. You can think about the security deposit like the deposit a landlord holds for an apartment.

A secured credit card can be a great option if you’re trying to build credit, especially if you’re having trouble qualifying for other cards.

When it comes to purchases, secured cards work the same as other credit cards. The biggest difference is the security deposit.

In some cases, the security deposit may be the same as your secured credit card limit. For example, a $200 deposit might give you a $200 credit limit. But some cards might provide a credit limit that’s higher than the amount of the security deposit. With the Capital One Platinum Secured card, an initial security deposit of $49, $99 or $200 can open an account with a credit line of at least $200. Platinum Secured also lets cardholders raise their credit limit by depositing more than the minimum.

Unsecured credit cards don’t require a deposit. These cards might be what you think of when you think of a traditional credit card. Without the security deposit to act as collateral, unsecured cards tend to have stricter requirements for approval. 

Rewards like cash back or miles may be limited with secured cards. But not in all cases: The Capital One Quicksilver Secured Rewards card offers cardholders 1.5% cash back on every purchase.

The process of applying for a secured credit card varies by issuer. But here’s how applying might work.

1. Get approved for a secured card. To start, you could check whether you’re pre-approved for a secured card before you apply. At Capital One, pre-approval is quick and secure, and it won’t hurt your credit scores.

2. Make your security deposit. Some card issuers allow you to fund your deposit over a period of time. Others may require an upfront deposit. 

3. Start using your secured card. Once you’ve received your card, you can use it to make purchases like you would with any other credit card. If your goal is to build credit, it’s important to use your credit card responsibly. That means doing things like making monthly payments on time.

There are many benefits to using secured credit cards. A secured card could help you:

• Gain experience using a credit card

• Access a line of credit

• Build your credit with responsible use, like paying your bills on time every month

• Work toward qualifying for an unsecured credit card

Here are tips for using a secured card to build credit.

• Understand your deposit. Make sure you’re able to fully fund your deposit within the time frame required by the card issuer. If you don’t fund the deposit in time, there’s a chance the issuer may close your account.

• Track your expenses and statements. Your credit card may be declined if you exceed your credit limit. And if you’re paying interest, you could end up owing more than the deposit. 

• Make on-time payments. Paying at least the minimum payment by the due date every month can help you avoid late fees and other penalties. And if you’re able to pay your statement balance in full, you may be able to avoid interest charges altogether.

• Use a budget. If you only use the card for a few fixed purchases each month, it may be easier to limit your spending and stay within your credit limit. Taking this approach could also help you get familiar with using a credit card. 

• Choose a card issuer that reports your credit activity. Some issuers may not report the activity of secured credit card accounts. If you’re looking to build your credit by using a secured card, make sure your issuer reports to at least one of the three major credit bureaus: Experian®, Equifax® or TransUnion®. Capital One reports secured card accounts to all three bureaus.

• Track your progress. One easy way to monitor your credit score and credit report is by using CreditWise from Capital One. It’s free for everyone to use. And checking your credit score won’t hurt it.

Learn more about secured credit cards with these frequently asked questions.

A secured credit card is a type of credit card that’s opened with a one-time refundable deposit. These cards can be helpful tools for people looking to build their credit. 

With responsible use, a secured card could be part of building credit and working toward financial goals. Are you new to credit or searching for your next credit card? Capital One can help:

• Check for pre-approval offers with no risk to your credit scores.

• Earn unlimited 1.5% cash back on every purchase, every day, with Quicksilver or other cash back rewards cards.

• Explore credit cards you can use to build credit responsibly and earn rewards.

• Monitor your credit score with CreditWise. Checking won’t hurt your credit score, and it’s free for everyone.