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From the Experts at Credit.com

Everything You Need to Know About Secured Credit Cards

by Gerri Detweiler

Everything You Need to Know About Secured Credit Cards

Maybe you’ve trashed your credit. Maybe you’ve never built credit at all. Either way, a secured credit card is an excellent way, when managed responsibly, to start building it up.

Secured cards are used by many people – some with poor credit, bad credit and even no credit, and others who have good credit but who like the features that secured cards offer.

How Secured Credit Cards Work

It’s easy to get started. Follow these four steps:

1. Get your credit score. Secured cards aren’t hard to qualify for, but you can fine-tune the process to help avoid rejection. Find out your credit score so that you apply only for cards you’re more likely to qualify for. Use Credit.com’s free Credit Report Card to receive two free credit scores, one from Experian, a major credit reporting agency, and another using VantageScore 3.0, a scoring system developed by the three major credit reporting agencies.

2. Shop. Using Credit.com’s credit card search tool, filter your search for cards according to your credit score. Read the fine print on each of offer, carefully comparing interest rates, fees, maintenance costs, penalties, grace periods and other details.

3. Deposit. Put down a deposit, usually $200 to $500, which becomes your collateral.

4. Learn your limit. You’ll get a credit limit, usually equivalent to your deposit. If you deposit $400, for example, your credit limit is $400.

Who Should Get Secured Cards

Even if you have good credit, there are reasons why a secured card may be a good fit for you. One of the secured card’s best features is its limitations, so you might like a secured card if you are:

  • Sticking to a budget. A secured card can help, since you’ll always know that you have to keep your card balance low.
  • New to using credit. A secured card works like training wheels: It’s a great way to learn and get comfortable using credit.
  • A parent. Parents use secured cards to teach students and young people how to use credit carefully.
  • On a limited budget. A secured card helps you avoid checking account overdraft fees when there’s not much money in your checking account. With a secured credit card, you don’t have to worry whether the money will be in your account when a check lands.
  • Living debt-free. If you’re avoiding the temptations of a credit card but still want to keep an active credit history, a secured card can support your goals.

As with any tool, secured cards have pros and cons

The Pluses

  • It’s a real credit card. Use the card at any place that accepts major credit cards. Unlike a prepaid card, you’re not drawing down deposited funds. Rather, you are using the card to borrow money at the terms established in your contract. The deposit covers the risk a card company takes when lending to you. Use your secured card anywhere you’d use any credit card. Manage the card responsibly and you’ll get the deposit back.
  • You can rebuild credit. A secured card, unlike a prepaid card, reports your credit record to some or all of the major credit reporting companies, TransUnion, Experian and Equifax. This allows you to establish or rebuild your all-important FICO score and restore your credit.
  • Easier to qualify. Not everyone qualifies for a secured card, but chances are good that you will, since approval rates are high. The requirements for these cards are much more forgiving than they are for major credit cards.

The Minuses

  • Small credit limit. Usually your limit is about the same as your deposit. The point is to build your credit slowly and safely, so have patience with starting small. Credit scores take into account how you use your available credit.
  • Cost. Some of these cards really pile on the fees. Fees vary a lot, depending on the card you choose. So shop carefully for the very best deal.

How Secured Cards Affect Your Credit Score

When you’re shopping for a card, be sure to choose one that sends your payment activity and account information to all three of the major credit bureaus – Equifax, TransUnion and Experian. This allows your credit score to benefit most from your credit usage and on-time payments.

Think of the card not as a convenience so much as a way to build credit. To get the most from it, it’s important to know how credit scores treat your usage and payment activity.

One credit score factor compares how much credit you’re using with the credit limit on your card. That’s called your “utilization ratio.”

To help build your credit, keep your utilization ratio low. Do that by carrying a balance that’s no more than 10% to 25% of your credit limit. Running up your card balance hurts your ratio, damaging your credit score.

For example, if your credit limit is $300, keep your balance under $75. If your limit’s $200, keep the balance under $50. If it’s $500, don’t go over $125. Note, though: you don’t have to run up debt to have good credit. It’s perfectly fine to pay your balance off in full each month.

Your payment history affects up to 35% of your credit score. Late payments bring down your score, while on-time payments keep your credit score healthy.


  • http://www.credit.com/ Credit.com Credit Experts

    Could you clarify your question a little? What are you asking us?

  • http://www.Credit.com/ Gerri Detweiler

    First of all, congratulations on maintaining such a good history on this card!

    Secondly, if you close it you won’t lose the entire history. But you will lose the available credit when your debt usage ratio is calculated.

    A couple of questions for you: have you tried applying for a different unsecured card? If you qualify for one you want then you can start using the new one and build a credit history.

    If you don’t, then can you stomach another year with this card? If you keep up the good payment history I can’t imagine you wouldn’t start finding other options.

    • Yaco Abreu

      I was approved in August 2014 only months after the secured account for an unsecured Capitalone Quick Silver One cash back Rewards card with a $300 limit . Having known how to manipulate it and bleed it of all its benefits and so on, as of February 2015 a CLI of $3,000 was applied without requesting it amounting to a grand total of $3,300 of unsecured credit, and to sweeten the pot they have upgraded the account to Quick Silver which is the version in the category of excellent – good credit – Fico across the 3 Experian – 650 Transunion -650 Equifax-647 currently. Is that 4 month difference in account age in (credit) measurement of time a big factor? I would like to think it’s the equivalent of half of an eye blink at most.

      • http://www.Credit.com/ Gerri Detweiler

        Four months isn’t a huge amount of time, and if you really don’t want the other card it sounds like it’s time to move on. That’s great you were able to get your credit limit from $300 to $3300! Excellent progress.

  • heavyw8t

    One option is to recover just half of your escrow money ($500) and apply for a Capital One secured card. That will give you two accounts to use as you establish positive history rather than one big one. Canceling the card would also remove your oldest card from your history and change your credit age. I went through the rebuilding process and in 18 months have rebuilt from having no credit at all to having 1 secured and 3 unsecured cards in my wallet, and 3 other same as cash accounts, and a score that went from 560 to the high-mid 600s. Remember that secured credit is a good “starter home”, but after a year you should be able to get an unsecured credit card if your payment record has been as responsible as you say. One thing I might offer as a point of strategy is to back down from that 25% usage. Use just 10% of the credit line and pay it to $0 every month. Try to NEVER take a balance forward. While I had only a $500 limit secured card, I used it for one tank of gas and then put it away for the month. This may help you rebuild a little faster.


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  • Meet Our Expert

    gerri_detweiler GravatarGerri Detweiler is Credit.com's Director of Consumer Education. She focuses on helping people understand their credit and debt, and writes about those issues, as well as financial legislation, budgeting, debt recovery and savings strategies. She is also the co-author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, and Reduce Stress: Real-Life Solutions for Solving Your Credit Crisis as well as host of TalkCreditRadio.com.
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