Building credit can be challenging when you have little or no credit history. Traditional credit cards may have eligibility requirements that are difficult for new borrowers to meet.
That is where secured credit cards can become an option.
A secured credit card typically requires a refundable cash deposit that provides security for the account. In many cases, the deposit is connected to the initial credit limit. The card can then be used for purchases much like a traditional credit card.
For consumers looking for the best secured credit cards for building credit, the most important factors are not necessarily rewards or welcome bonuses. Fees, credit reporting, deposit requirements, interest rates, credit limits, and the possibility of eventually moving to an unsecured card can be much more important.
What Is a Secured Credit Card?
A secured credit card is a type of credit card backed by a cash deposit.
For example, suppose an issuer requires a $500 security deposit and provides a $500 credit limit. You can use the card for eligible purchases, and you remain responsible for making the required payments.
The deposit is generally held as security and is not the same thing as making your monthly payment.
The Consumer Financial Protection Bureau explains that secured cards can be used to establish or rebuild credit, and that many secured cards begin with a relatively small credit line backed by a deposit.
How Do Secured Credit Cards Work?
The process is relatively straightforward.
Step 1: Apply for the Card
You submit an application according to the issuer’s requirements.
The approval criteria can vary significantly between issuers.
Step 2: Provide the Security Deposit
If approved, you may need to provide a refundable deposit.
The required amount depends on the card and the credit limit you receive.
Step 3: Use the Card
Once the account is active, you can generally use the card for purchases up to your available credit limit.
Step 4: Make Payments
You must make payments according to the card agreement.
Paying on time is essential because your account activity may be reported to credit bureaus.
Step 5: Build Your Credit History
If the issuer reports your account activity and you consistently manage the account responsibly, the card can contribute to your credit history.
The CFPB specifically recommends checking whether a secured card reports payment activity to the credit reporting companies before choosing one.
What Should You Look for in the Best Secured Credit Cards?
Not every secured card has the same terms.
Before applying, compare several features.
1. Credit Bureau Reporting
This should be one of your highest priorities.
If your goal is building credit, find out whether the issuer reports your payment history and account activity to the major credit reporting companies.
A card that does not provide useful credit reporting may be less valuable for someone whose primary goal is establishing a credit history.
2. Annual Fee
Some secured credit cards charge annual fees.
Others have no annual fee.
If two cards offer similar features, the lower-cost option may be more attractive.
However, don’t choose a card based solely on the annual fee. Consider the complete pricing structure.
3. Security Deposit
The deposit requirement can vary.
A $200 deposit may be easier to manage than a $1,000 deposit, particularly if you are working with a limited budget.
Before applying, make sure you understand:
- Minimum deposit
- Maximum deposit
- How the deposit is held
- When the deposit may be returned
- Whether the deposit determines the credit limit
4. APR
The annual percentage rate can be important if you carry a balance.
The CFPB warns that fees and interest rates can be relatively high on some secured cards.
Ideally, use the card only for purchases you can afford to repay.
5. Graduation to an Unsecured Card
Some secured cards may offer a path toward an unsecured account.
This can happen through a periodic review of your account or other issuer-specific criteria.
If you qualify, the issuer may return your security deposit and transition the account to an unsecured product.
However, not every secured card offers this feature.
If this is important to you, check the issuer’s current terms before applying.
Secured vs. Unsecured Credit Cards
The main difference is the security deposit.
| Feature | Secured Card | Unsecured Card |
|---|---|---|
| Security deposit | Usually required | Usually not required |
| Credit limit | Often connected to deposit | Determined by issuer |
| Designed for limited credit | Often | Sometimes |
| Credit reporting | Depends on issuer | Depends on issuer |
| Graduation opportunity | Some cards | Not applicable |
| Rewards | Varies | Often more options |
A secured card can be useful when traditional cards are difficult to obtain.
An unsecured card can be more convenient when you qualify for one with favorable terms.
How Much Should You Deposit?
There is no universal amount that is best.
Your deposit should be an amount you can comfortably set aside without creating financial stress.
For example, if an issuer allows a $300 security deposit and you can comfortably provide that amount, the resulting credit limit may provide enough room for controlled monthly spending.
Remember that the goal is not to maximize your credit limit.
The goal is to establish responsible credit behavior.
How Credit Utilization Works With a Secured Card
Credit utilization is especially important when you have a small credit limit.
Suppose your secured card has a $500 credit limit.
If your reported balance is $400:
$400 ÷ $500 = 80% utilization
That is a high utilization ratio.
If your balance is $50:
$50 ÷ $500 = 10% utilization
That represents a much lower ratio.
FICO explains that credit utilization is part of the “Amounts Owed” category, which accounts for roughly 30% of a typical FICO Score. FICO also states that lower revolving utilization is generally associated with lower credit risk.
This is one reason a secured card should be used carefully.
Do You Need to Carry a Balance to Build Credit?
No.
Carrying a balance does not make a credit card more effective as a credit-building tool.
In fact, carrying a balance can result in interest charges.
The CFPB recommends paying your credit card balance in full each month when possible to avoid finance charges.
A simple strategy can be:
- Use the card for small purchases.
- Monitor your balance.
- Pay the bill on time.
- Ideally pay the statement balance in full.
- Repeat the process consistently.
Best Secured Credit Cards for Beginners
For someone new to credit, simplicity is often more important than rewards.
A good secured card for a beginner may have:
- A reasonable deposit
- Low or no annual fee
- Clear terms
- Credit bureau reporting
- A manageable credit limit
- Online account management
- Automatic payment options
- A potential graduation path
Don’t assume that a card with rewards is automatically better.
If your primary objective is establishing credit, responsible account management should come first.
Best Secured Credit Cards for Rebuilding Credit
People rebuilding credit after missed payments, collections, or other negative information may also consider secured cards.
However, a secured card cannot erase negative information that is accurately reported.
Instead, it can potentially provide an opportunity to establish new positive payment history.
FICO notes that rebuilding credit is a gradual process involving consistent payment behavior, reducing revolving balances, and responsible use of credit.
Before applying, consider reviewing your credit reports for inaccurate information.
How to Use a Secured Credit Card Responsibly
Keep Purchases Small
You don’t need to use the entire credit limit.
A small recurring purchase can be enough to demonstrate regular account activity.
Pay Every Bill on Time
Set up automatic payments or reminders.
Your objective should be to avoid missed payments.
Keep Utilization Low
Because secured cards often start with relatively small limits, even modest purchases can represent a large percentage of available credit.
Monitor the balance regularly.
Don’t Apply for Multiple Cards
Opening multiple accounts simply because you have difficulty getting approved can create unnecessary applications.
Choose carefully.
Avoid Cash Advances
Cash advances can carry additional fees and interest.
They generally should not be part of a basic credit-building strategy.
How Long Should You Keep a Secured Credit Card?
There is no universal answer.
You may want to keep the account while it remains useful and affordable.
Some consumers eventually qualify for an unsecured card and choose to transition away from their secured card.
Before closing the account, consider:
- Annual fee
- Credit limit
- Account age
- Available credit
- Utilization
- Whether your deposit has been returned
- Whether you already have other credit accounts
Closing an account can change your available revolving credit and therefore affect your utilization ratio. FICO explains that closing or reducing a credit limit can sometimes cause utilization to increase, although the effect varies by credit profile.
What Happens to the Security Deposit?
The security deposit is generally collateral for the account.
Depending on the issuer’s terms, it may be returned when:
- The account is closed and the balance is paid
- The account graduates to an unsecured card
- Another qualifying event occurs under the agreement
The exact conditions vary.
Never assume the deposit will be returned immediately.
Read the card agreement before applying.
The CFPB maintains a database of credit card agreements that consumers can use to review issuer terms.
Common Mistakes to Avoid
Choosing the Card With the Lowest Deposit
A low deposit can be attractive, but it doesn’t necessarily mean the card has the best overall terms.
Ignoring Fees
Some cards can have annual or other account fees.
Calculate the total potential cost before applying.
Using Most of the Credit Limit
A small credit limit makes high utilization easier to reach.
Monitor your balance carefully.
Carrying a Balance
You don’t need to pay interest to build credit.
Paying the balance in full when possible can help avoid unnecessary finance charges.
Forgetting About the Deposit
The deposit is not a payment toward your monthly bill.
You remain responsible for paying your credit card balance.
Applying Without Checking Credit Reporting
If credit building is your main objective, confirm that the issuer reports the account to the relevant credit reporting companies.
Frequently Asked Questions
What is the best secured credit card for building credit?
The best option depends on your credit profile, deposit budget, fees, APR, credit reporting practices, and long-term goals. Look for a card that reports responsibly and has terms you can comfortably manage.
How much money do I need for a secured credit card?
The required deposit varies by card. Some products may start with a relatively small deposit, while others allow larger deposits and corresponding credit limits.
Does a secured credit card build credit?
It can, provided the issuer reports the account activity and you manage the account responsibly. On-time payments can help establish a positive credit history.
Can I get my deposit back?
Potentially. The terms vary by issuer. Some cards may return the deposit when the account graduates to an unsecured product or when the account is closed and the balance is paid.
Is a secured credit card better than a regular credit card?
Not necessarily. A secured card can be easier to obtain for some people with limited or damaged credit, but an unsecured card may provide better terms if you qualify.
How quickly can a secured card improve my credit?
There is no guaranteed timeline. Building or rebuilding credit generally requires consistent responsible behavior over time.
Final Thoughts
The best secured credit cards for building credit should be evaluated based on more than their advertised deposit or rewards.
Before applying, compare the security deposit, annual fee, APR, credit limit, credit reporting practices, and graduation opportunities.
Once the account is open, focus on the fundamentals: make payments on time, keep your balance manageable, and avoid borrowing more than you can comfortably repay.
A secured credit card is not a shortcut to excellent credit. It is a financial tool that can potentially help you establish a stronger credit history when used responsibly and consistently.