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Benefits of a Secured Credit Card 

Key takeaways

  1. A secured card requires a refundable deposit can be used to set your credit limit. It can then be used like most other credit cards

  2. Because qualification is more flexible, secured cards are accessible for people with no credit history or people trying to rebuild credit

  3. With consistent, responsible use, you may find that many card issuers will offer an upgrade to an unsecured card

The benefits of a secured credit card make it a popular option for people who are new to credit or are working to rebuild it. A secured card generally looks and works like a standard credit card but requires a one-time, refundable security deposit.

The deposit acts as collateral for the bank and helps determine your credit limit. For example, a $300 deposit could result in the cardholder having a 300 credit limit.

By using the card responsibly—making payments on time and keeping your balance low—you can start building positive credit habits and improve your credit profile over time. If you keep a strong track record, you may eventually qualify for an unsecured credit card and get your deposit back.

Key benefits of a secured credit card

Let's review some of the main benefits of the secured credit card. 

Helps build or rebuild credit

Make sure that any secured credit card you apply for reports monthly activity to at least one of the three major credit bureau—Equifax®, Experian®, or TransUnion®. As you make the required monthly payments on time, the activity will be reported and placed on your credit report. Keeping your credit utilization low, which means using a small percentage of your available credit, also will show up as a positive part of your credit report. Over time, this will establish or rebuild your credit history and help you to achieve a favorable credit score.

Easier approval for those with low or no credit

Because your line of credit is backed by a deposit, credit card issuers tend to be more flexible about approving applications. This makes a secured credit card ideal for credit newcomers and people recovering from past financial difficulties.

Works just like a regular credit card

Secured cards typically can be used in the same ways and places that unsecured credit cards are used. Some secured credit cards also come with cash back rewards and the same types of security and travel benefits that unsecured cards offer.

Refundable cash deposit

If you keep your account in good standing, your deposit could be fully refundable once the account is closed or you graduate to an unsecured card.

Builds positive credit habits

Using a secured credit card responsibly is important. You can build credit with a secured card by making on-time payments, keeping your balance low, and avoiding unnecessary debt.

Secured cards, like unsecured cards, are useful tools for learning responsible personal finance habits.

Access to higher credit limits over time

Many banks review secured card accounts periodically and may offer higher credit limits as you demonstrate consistent, responsible use. You also might be able to increase your credit limit by adding to your cash deposit. 

Pathway to an unsecured credit card

With a solid record of on-time payments and good credit management, you may qualify to graduate to an unsecured card. Card issuers have different criteria for graduating customers; it could take several months or considerably longer. They might change your account automatically after reviewing your progress. You also could contact your card issuer to ask about their rules and to ask to be graduated to an unsecured card.

Helps prevent overspending

Since your credit limit is tied to your deposit, the risk of overspending is reduced. This is part of what makes a secured credit card a useful tool for rebuilding credit.

Best practices for using a secured credit card

Using a secured credit card responsibly is the key to leveraging its value as a credit building tool. Here are 5 best practices for using your secured credit card.

1. Pay on time every month

Payment history tends to be one of the most important factors in a credit score. Even if you can afford only the minimum payment, send it by the due date. To help you stay consistent with this important responsibility, set up payment reminders or automate your payments.

2. Keep your balance low

The credit utilization rate also tends to be a big part of credit scores. Many experts recommend keeping it below 30%. This can indicate to lenders that you know how to handle credit wisely.

3. Avoid carrying a balance

Paying off your balance in full each month helps avoid interest charges and demonstrates financial discipline. It also may help to keep your credit utilization low. 

4. Monitor your credit score

Regularly monitoring your credit score and progress lets you track your successes, identify errors, and stay encouraged as you try to build credit. Many banks offer built-in credit monitoring tools to help with this.

5. Upgrade when eligible

After a certain length of time, your responsible use of a secured card could make you eligible to graduate an unsecured card. Your refundable deposit will then be returned to you.

FAQs

The key benefit of a secured credit card is that it helps you build or rebuild credit. Your on-time payments and credit utilization habits can be reported to at least one of the major credit bureaus, helping establish a credit history.

Yes. A secured credit card requires a one-time, refundable cash deposit. The deposit amount usually helps to determine your credit limit. When you close or upgrade your account in good standing, you’ll get your money back.

Absolutely. If you can establish a record of consistent on-time payments and smart credit utilization habits—and your account activity is reported to at least one of the credit bureaus—your secured credit card can help you build or rebuild a credit history that will lead to a better credit score.

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This article is for general informational purposes only. It is not intended to provide specific financial, investment, tax, legal, accounting, or other advice and should not be acted or relied upon without the advice of a professional advisor. A professional advisor will recommend action based on your personal circumstances and the most recent information available.

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