What is a Secure Credit Card—and Does it Build Credit?

What is a Secured Credit Card?

A secured credit card is a credit card with a cash-backed credit limit. When you open a secured credit card, you must give the card issuer a deposit—typically as much as the card’s maximum credit limit. This deposit secures your line of credit for you. Your knows that in the event of your inability to pay you won’t default on your monthly bill—they have the maximum amount you could possibly charge safely.

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Secured Credit Cards vs. Unsecured Credit Cards

They may look the same and seem to spend the same in the same places, but secured credit cards have one key difference from their unsecured siblings: Money down.
Unsecured credit cards lead to unsecured debt when you use your line of credit. A secured credit card, on the other hand, leads to secured debt—debt that is backed by collateral (your deposit) and therefore less risky for you and your lender.

Low- or no-credit consumers are more likely to have secured credit cards rather than unsecured credit cards. The risk associated with unsecured credit is ameliorated by securing it, giving you access to a line of credit and credit building opportunities. Having less-than-perfect credit doesn’t necessarily mean unsecured credit cards are out of reach, but chances are secured credit cards are your best (if not only or easiest to get) option.

How Does a Secured Credit Card Work?

Using a secured credit card is just as easy as using an unsecured credit card:

• Pay the required deposit to secure your line of credit.
• Use wherever cards from your servicer are accepted—in person and online.
• Pay your bill on time—and in full, or you’ll accrue interest.
• Don’t think of your down payment as money in the bank; if your credit servicer needs to use that deposit toward your balance, that’s a bad thing.

Do Secured Credit Cards Build Credit?

The ability to build credit is what really sets secured credit cards apart from debit cards and other prepaid cards, like gift cards (neither of which build credit for the user). To ensure your chances of boosting your credit score, use your line of credit judiciously—never charge more than you can afford to pay back at the end of the billing cycle. Paying in full each month without accruing interest is a sure-fire way to build healthy money management skills and show your creditworthiness.

Using secured credit cards responsibly is a great way to build credit for those with low or no credit score. If you find yourself struggling with managing debt and your existing credit cards, consider looking into other ways to keep track of your debt, like credit card payoff calculators and credit card usage logs.