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What is a secured credit card?|

A secured credit card is a credit card that requires an initial security deposit as part of the application process. Because of this security deposit they have very high approval rates and can help people with bad credit get approved for a credit card to improve their credit.

~How does the deposit on a secured credit card work?|

For those who have less-than-perfect credit or very little credit history, secured cards offer a way to reduce risk to lenders by requiring a deposit to secure the credit line. Your deposit generally determines the card's credit limit. However, you can't skip your payment and expect the security deposit to cover it. The issuer uses the deposit only as a last resort, in the event a cardholder stops paying their bill entirely and defaults on the account.

Some secured credit cards let you choose your credit limit during the application process. Credit limits generally start at $200 but may go as high as $3,000. When you apply for a secured card, you pay the deposit and any other fees using debit or electronic transfer.

If you eventually pay off and close your account or upgrade your secured card to an unsecured credit card, you'll get the security deposit back, less any outstanding balance and fees.

~Can secured credit cards build credit?|

Using a secured credit card responsibly can help you build credit or improve your credit score. In order for you to build credit with a secured card, you need to make sure that the card issuer reports to at least one of the three credit bureaus. It's pretty standard for secured cards to report to all three credit bureaus.

~How to get your secured credit card deposit refunded|

If you upgrade your account to an unsecured credit card from the same card issuer or if you close your secured credit card account in good standing then you can get your security deposit back.

~What's the difference between secured and unsecured credit cards?|

The main difference between secured and unsecured credit cards is that secured cards require you to send the card issuer a refundable deposit when you open your account. This security deposit acts as a failsafe for the issuer if you fail to pay your bill, giving them less risk to take in approving you for a card. Beyond the security deposit, both secured and unsecured cards work the same way. You can make purchases up to your credit limit, pay them off and repeat the cycle.

~How much do I have to deposit for a secured credit card?|

This will be dependent on the issuer but secured credit cards generally require you to deposit at least $200. Select credit cards allow you to deposit less money and will still give you the standard $200 credit limit. However this depends on your creditworthiness.

~Is getting a secured credit card worth it?|

Unsecured credit cards for people with poor credit exist, but they typically impose high interest rates and fees. Becoming an authorized user on a family member's or close friend's credit card can help improve your credit score, but isn't always possible. A secured credit card is generally a better option when building credit is your primary goal.

Secured credit cards have several benefits:

  • Secured credit cards can be used in any situation where you'd use an unsecured credit card; no one will know the card is secured.
  • You'll have more flexibility in how you pay for purchases, including the ability to pay over time.
  • Credit cards provide more protection from fraudulent purchases than debit cards and may offer purchase protections as well.

Perhaps the biggest benefit of a secured card is that it can help improve your credit. If you show responsible payment habits, you could get approved for a higher credit limit, which can reduce your credit utilization ratio and further boost your credit score. As your credit score improves, you're more likely to qualify for an unsecured credit card, either from your secured card issuer or another company.

~How fast will a secured credit card build credit?|

There's no hard-and-fast rule for how quickly you can build credit with a secured credit card. The best approach is to use your card for small purchases and pay off your balance every month. A history of on-time payments will do the most to help your credit score, so take care not to miss a due date.

Before you apply for a secured credit card, check that the card issuer reports your payment history to at least one consumer credit bureau—Experian, TransUnion or Equifax—but better yet, all three. Unless your payment history gets reported, it won't help build your credit score.

Assuming you make all your payments on time, some secured credit card issuers will raise your credit limit after a certain period. Others will offer the option to upgrade to an unsecured credit card.

Once you graduate to an unsecured card, don't rush to close your secured credit card. Closing an account reduces both your available credit and the average age of your credit accounts. This can negatively affect your credit score, so it's best to keep the account open even if you don't plan to use it. You can put a regular, small purchase on the card and pay it off each month to keep it active.