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What Is a Secured Credit Card?

Secured Credit Card vs. Unsecured: What's the Difference?
 Here’s a catch-22: A credit card is the quickest way to build good credit, but you often can’t get a credit card without good credit. Secured credit cards can help people with bad credit or short credit histories escape this paradox. Here’s what you need to know to understand secured cards and how they differ from regular unsecured cards.

What is a secured credit card?

A secured credit card is backed by a cash deposit you make when you open the account. The deposit is usually equal to your credit limit, so if you deposit $200, you’ll have a $200 limit.

The deposit reduces the risk to the credit card issuer: If you don’t pay your bill, the issuer can take the money from your deposit. That’s why these cards are available to people with bad credit or no credit.

What happens to that $200 deposit if you always pay your bill on time? You’ll eventually get it back. Use the card responsibly, and you can improve your credit enough to qualify for an unsecured card — one that doesn’t require a deposit.The deposit is usually equal to your credit limit, so if you deposit $200, you’ll have a $200 limit.

Some of the best secured cards may allow you to upgrade your account directly to an unsecured card. Others don’t have an upgrade process, so you’ll have to apply elsewhere, then close the secured card. When you upgrade or close a non-delinquent secured card, the issuer refunds your deposit.

The minimum and maximum amount you can deposit varies by card, but you should be prepared to come up with at least $200 for a secured card deposit.

Secured vs. unsecured cards

Whether you need a secured card comes down to how good your credit is.

For unsecured cards, which don’t require a deposit and therefore pose more risk to the issuer, credit-card companies typically require at least average credit, and good or excellent credit for the best ones. Some unsecured cards advertised as easy to get come with extremely high fees.

Some unsecured credit cards advertise themselves as easy to qualify for even if you have bad credit. But these cards usually charge extremely high fees. NerdWallet recommends applying for a secured card rather than a high-fee unsecured card.

How secured credit cards work

Once the initial deposit is paid, secured cards work just like unsecured ones:

  • You can use them wherever credit cards are accepted, including online
  • You can build or rebuild your credit by using the card responsibly and paying your balance on time
  • You incur interest if you carry a balance

Most major credit card issuers offer both secured and unsecured cards. Annual fees are common, but you shouldn’t pay more than $50. You can find secured cards with a $0 annual fee among our favorites.

If you can’t qualify for an unsecured card, a secured card can be a great tool as you look to improve your credit. But it’s as important to be responsible with a secured card as it is with any other loan or bill that shows up on your credit report.