How Does a Secured Credit Card Work

Getting a secured credit card is a great way to build credit for those who have no credit history at all, or who currently have some blemishes on their credit report. Once you receive it, your card works the same as any other credit card, but the entire credit line is backed up by an initial deposit made before you get the card.

How to Apply for a Secured Credit Card

Applying for a secured card is just like applying for any other type of credit card. Visa, Mastercard, Discover and American Express all have a secured card program for those looking to build their credit.

Financeography Tip: Checking your actual credit score through Credit Sesame is completely free and only takes about 3 minutes.


You will fill out your name, address, SSN, and lots of other personal information so that the company can decide how much of a secured line of credit they are willing to extend to you. Most of the time, you will find that the initial line of credit is only a few hundred dollars, sometimes up to $1000.

In some rare cases, you may be declined by a credit card company for a secured card. This does not happen very often but when it does, it can often be traced back to a recent charge-off by the same company. If you are declined with one of the major providers, feel free to try one of the others. It’s likely your credit will not take much of a hit, especially if your credit score is already under 600. Hard credit inquiries fall off of your report after two years, while the main items causing you to have a low credit score will probably stay on much longer than that.

Making the Initial Deposit

When you are approved, you will be asked to submit the deposit to secure the line of credit. You can do this by either sending in a check, or by having the company withdraw it immediately from your bank account. These deposits usually post within 1-2 business days, which starts the process of getting your card out to you.

Paying a Secured Credit Card

You will be asked at some point to create an account with your card provider so you can access their online payment and document portal. Just like a regular credit card, you will make your payments online and the money will be drawn out directly from your bank account.

It is important to remember that credit card companies report secured credit cards the same way as unsecured cards. If you miss a payment, you may still be assessed a fee, which you may be able to call and have waived. Several months of late payments will look very bad on your credit report, even though the entire card is backed up by your deposit. You’re doing this mainly to build your credit up, which always means making your payments on time and keeping your credit utilization low.

Moving to an Unsecured Credit Card

After a certain amount of time, most internet research says 1-2 years, you can request that your credit card become unsecured. Most of the time, banks and credit card companies will be hesitant to do this since there is usually a legitimate reason to need a secured card in the first place.

If you are close to having a one year old account as opposed to 2+ years, you may be denied unless your credit report has been significantly cleaned up. You can help bolster your chances of making your card unsecured by making every payment on time and not going over your spending limit. Paying off your card in full every month also seems to help your chances, as well as not having a recent charge-off or settlement with the provider.

Closing the Account

Deciding to close your secured credit card account will mean that your deposit will be used to pay any balance on the card. Using the deposit in this way does not hurt your credit and anything leftover will be returned to you, sometimes by check or you might be able to have it directly deposited into your bank account.


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