A secured credit card is like a driver’s permit which allows you to first master navigating the credit card universe. This prepares you to advance to the next level or license of obtaining an unsecured credit card.
Unlike a debit card, your secured credit card shares your activity, such as your monthly payment history and balances, with the major credit bureaus.
With sustained favorable reports from a secured credit card, you may be able to upgrade to an unsecured credit card, which doesn’t require a deposit.
There are some cases where the deposit is saved in an interest-earning account, but this shouldn’t weigh heavily in choosing the best secured credit card for you.
How Much Do You Need to Deposit?
This often depends on the card issuer, so here are some examples:
The Citi® Secured MasterCard® requires a deposit of $200 – $2,500.
Capital One Secured MasterCard® requires a $200 minimum deposit.
Don’t fret if you can’t afford these deposits. There are some secured credit cards for bad credit that allow you to pay the deposit in installments.
Depending on your financial situation, these deposit requirements will determine which card would be best for your situation.
Secured Credit Card Terms
Apart from the required deposit, secured credit cards for bad credit work in the same way as regular (unsecured) credit cards.
They are issued by leading credit card companies like Visa, MasterCard, and Discover. As a cardholder you can use the card anywhere the brand is accepted and may be eligible for rewards and other perks.
You will receive a monthly credit card statement showing your balance and you are required to pay at least the minimum balance.
Note: As with other credit cards, secured credit cards may also have annual credit card fees, monthly maintenance fees and balance inquiry fees.
The APRs of secured cards are often quite high – as much as 20% – but still in line with the national average of just over 20% as of January 2021.
On the other hand, if you are a candidate for a secured credit card, your credit score is probably not very strong so you wouldn’t qualify for great rates anyway.
How to Get Approved for a Secured Credit Card
Approval will often depend on criteria other than the deposit. For instance, Capital One requires applicants to have a functioning bank account.
They generally don’t check your credit score and do not require a bank account.
Rates and fees
As secured credit cards often offer higher interest rates, review the card’s annual percentage rate (APR), annual fee and any miscellaneous fees carefully.
Compare the benefits various secured cards offer.
Although the deposit amount will vary, many secured credit cards require a minimum deposit of $200 and some allow you to make deposits of up to $2,500.
When you apply for a secured card, look for a lender that also issues traditional, unsecured credit cards. This will make it easier for you to transition to an unsecured card when you are ready.
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