The Definitive Guide for 2020

Figuring out this whole “Credit” thing can be time-consuming, confusing and downright aggravating, especially after you find out that secured credit cards exist.

But hear me out:

What if I told you that not only can you learn about how secured cards work in a very short time, but that you would also be able to apply for a secured credit card quickly and start building or re-building your credit in no time.

In this guide, I am going to go over exactly how secured credit cards work, who they are best for, their pros and cons as well as how to use them to grow your credit.

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What Is A Secured Credit Card?

When you apply for a credit card with either no credit or a poor credit history, the credit card company is usually on “high alert.”

However, to actually build your credit, you first have to obtain credit.

Which makes it very challenging if no one will lend you the credit you need to grow your credit profile because you made mistakes with your first credit card.

what is a secured credit card

OpenSky® Secured Visa® 

This is where Secured Credit Cards come into play, and the risk is taken off of the credit issuer and placed on the borrower.

A secured card is a type of credit card that has to be backed by a refundable security deposit (usually at least $200) before the lender will issue you the card.

Whatever you submit as your security deposit will be your actual credit card limit.

Outside of you having to make a deposit, a secured card works and functions like a traditional or unsecured credit card.

Which means that:

You can still use the card anywhere the type of card is accepted (Visa, MasterCard, American Express or Discover).

How Does A Secured Credit Card Work?

Even though the differences between a secured card and an unsecured credit card are minimal, they are big enough that you need to know a bit more about how they work:

You Apply 

When you apply for a secured credit card, you are approved based on your current credit profile.

However, this will all depend on the company you are applying with because some secured cards like the OpenSky® Secured Visa® don’t actually check your credit for approval.

what is a secured credit card

Submit Your Deposit 

Once you have been approved, it is time to submit your deposit, as I stated above, this deposit will become your initial credit limit.

These deposits can be as low as $200 and as high as $5,000 depending on the card you apply for.

Card Gets Funded & Mailed 

After you submit your deposit, your card will be funded and mailed out to you. This process can take anywhere between 7 and 14 business days. 

This is probably the most nerve-wracking part because you have given out a few hundred bucks and you won’t have access to it until your cards arrive.

It Reports To All 3 Bureaus

Once you have received your card, it is time to start using it to show that you can be a responsible borrower.

We recommend you start with the Candy Bar Method which in simple terms is when you only use the card to buy a candy bar once per month.

Using this method will show the creditors that you are using the credit and also gives you a super small monthly bill that you can pay in full.

Once you pay your bill, the creditors will be sending that information to all three of the top credit reporting agencies.

These agencies are Equifax, Experian, & Transunion.

Little to No Rewards 

If you are building or rebuilding your credit, the only reward you need is to see your credit score increasing.

However, it would also feel good to get some type of rewards for using your credit responsibly.

Unfortunately, most secured cards don’t have any type of rewards or cash back programs that come with a traditional credit card.

Higher Interest Rates

One thing that can’t be looked over when it comes to a credit card that is secured is the higher than average interest rates.

Some cards can go past a 25% interest rate which means you don’t want to carry a high balance if any at all.

While the credit card companies are allowing you to establish or rebuild credit, higher interest rates are one of the costs that come with it. 

Annual Fees 

Almost all secured cards come with a yearly fee, while there are a few that don’t have an annual fee.

You need to be mindful of what this fee is because you will need to keep in mind how much a card is costing you on an annual basis in both interest and fees.

Card Graduation

A very few secured credit cards allow for credit card graduation when you have shown that you are a responsible borrow over a specific amount of time. 

This graduation will take you from a secured card to an unsecured card and your initial security deposit will be returned to you immediately. 

However, for the cards that won't graduate, you will have to apply for second unsecured card and close the secured card.

When starting off in your credit journey or re-establishing credit I wouldn't recommend closing any cards or accounts on your credit profile.n

You should reach out to your credit card company to see if the card can graduate or not.

Return Of Your Security Deposit

If you decide to close your account with a $0 balance owed, the full amount of your security deposit will be sent back to you.

However, if you close the account with a balance, the amount owed will be taken out of your security deposit and any remaining funds will be sent back to you.

Check out this quick video from Green Dot on how a secured card works:

Who Is A Secured Card For?

Secured cards tend to get labeled as being only for people who have bad credit; however, this is far from true, secured credit cards can work for:


While you probably can easily get approved for a student credit card, you are also going to be able to get approved for a secured credit card. 

This is an excellent strategy if you want to have multiple tradelines on your credit report to show a good mixture of credit.

Someone With No Credit 

If you don’t have any credit, it still can be hard to obtain an unsecured card.  That doesn’t mean you have bad credit; you just don’t have anything for lenders to make a decision on.

Obtaining a credit card that is secured will be a great option for you if you have little to no credit.

The card will also allow you to start establishing and building credit.

A Person With Poor Credit 

If your past mistakes have given you a poor credit score, think of a secured card as your second chance.

Your second chance credit card gives you the ability to re-establish yourself as a responsible borrower and adult.

Once you have this secured credit card, it is time to prove that you were worth this second chance.

Pro’s & Cons Of A Secured Card



Build Or Re-Build Credit

Choose Your Own Credit Limit

Very Easy Approval Odds

Reports To All 3 Credit Bureaus 

High Interest Rates

Annual Fees

Most Cards Can't Graduate

Creating Your Own Credit Limit

Outside of growing your credit score, creating your own credit limit is a great way to improve your score much faster.

This is because of things like credit to debt ratio and credit utilization.

With a secured card, you can continue to add additional security deposits to the card to increase your credit limit.

When I obtained my first secured card, I put $100 per week on the card every week until I reached $3,000.

Not only did this decrease my credit utilization, but it also showed any new creditor that someone had trusted me with $3,000.

Remember, your card does not show up on your report as "Secured" so a lender will see it as just another credit card.

My $3,000 credit limit made things really easy for me when I started applying for unsecured cards because I was being approved for limits either above or near the $3,000 range.​

Don't just go with the lower security deposit amount, get it up to as much as you can.

Automatic Credit Limit Increase 

Some secured cards offer an automatic credit limit increase, it works like this:

After you have made a few monthly on-time payments to your credit card, you will get an automatic increase to your credit limit.

There won't be any additional security deposit required to cover the new credit limit either.

Credit Monitoring Services

There are also some Secured cards that come with credit monitoring and reporting services.

However, don’t worry about that feature if your cad doesn’t come with this because you can get a free report from a ton of other sites.

credit monitoring my fico

Monitoring your credit is an essential factor for managing your credit and should be seen as an important step to credit growth.

You need to be sure that when you are looking at your credit file that you have all 3 in front of you. 

If you aren’t aware of how all 3 of your reports look then, you won’t have the full story of your credit, and it will be much harder to build or establish.

The best route to take for credit monitoring is going to be a paid route like My Fico.

Secured Vs Unsecured Credit Cards

To make sure we are very clear about what makes these two types of cards different we wanted to create a simple chart that you can follow below:

Secured Card

  • High APR
  • Usually An Annual Fee
  • Security Deposit Required
  • Manually Increase Credit Limit
  • No Rewards or Cash Back Programs
  • Low Credit Score Is Acceptable

Unsecured Card

  • Usually No Annual Fee
  • APR Based On Your Credit
  • No Security Deposit Required
  • Rewards & Cash Back Programs
  • Automatic Increase To Credit Limit
  • Average Credit Score Required

As you see from the above list, the two cards are similar in several ways and are also different or the exact opposite of each other in some cases. 

Using A Secured Card To Grow Credit

When it comes to building your credit with a secured card you need to make sure to follow the below steps:

Use The Candy Bar Method

You are going to be tempted to go all out on that $200 or whatever limit you initially give yourself.

However, that would be a colossal mistake; instead, you need to be very cautious with this limit and only use a small amount.

The Candy Bar Method will put you in a position where you are actively using the card but only for no more than the cost of a candy bar.

Three days after the purchase posts you need to pay the balance in full and repeat the process for the next month.

Pay Any Balance In-Full and On-Time

To maximize your score, you want to have low credit utilization and on-time payments.

It's vital that you treat this secured card like a traditional credit card.

Keeping balances low, avoiding high-interest payments and paying on time is essential to a better credit score.

Increase Your Credit Limit

Since you will probably start with a $200 limit, which is the minimum deposit for most of these cards, you should increase your limit.

credit limit increase request

Increasing your limit will decrease your credit utilization and also give your credit profile more experience with a higher limit.

Creditors like to see this when they look at your report.

The above 3 steps can really get you to the next stage of your credit growth plan.

The only other factor will be time and of course that 'isn't something we can control.

Alternatives To A Secured Card

When looking into building or re-establishing your credit, secured cards have been one of the go-to staples.

However, there are other options that you might want to consider if you can’t put up the $200 from day one to start building your credit.

We list some other alternatives below that will work great for building credit:

Credit Builder Loans

Credit builder loans are one of the newest ways to obtain and build credit without a credit card.

The way they work is that you will take out an installment loan for a specific amount.

However, instead of the loan being given to you, it will be put into a secured account, and you will need to pay it down.

Once you have paid the installment loan down, all of the funds will be sent back to you.

During the process, as you make on-time payments, this loan and the payments will be reported to all 3 credit reporting agencies.

I only pay $29 per month for my credit builder loan over 2 years for a $500 loan.

These payments are deducted monthly from my bank account and reported to my credit reports every month showing a good payment history.

There was a $9.00 startup fee and then the $29.00 per month, which is much more affordable than $200 for a secured card.

I obtained my credit builder loan from
Self Lender, they have one the best on the market, and you can read our Self Lender Review for yourself if you would like.

Merchandise Accounts

Merchandise accounts are similar to store cards in that you can only use the credit limit you are given to purchase items from that merchant.

The best thing about these accounts is that you can use them to buy items you would typically purchase daily.

This credit account is also much easier to qualify for and will report to all three credit bureaus.

The only drawback to this account is that it will pull your credit so you will get an inquiry and the fees for purchasing an item can be a bit high.

However, it doesn’t cost a penny to get one of these accounts.

I got my first Merchandise account through
Fingerhut, one of the most extensive and most accessible store accounts to set up.

They have millions of products you can buy, and they have 2 options for credit, so there is almost no way of being denied some type of loan.

You should check out my complete
Fingerhut credit card account review if you want the exact details on how it all works.

Student Credit Cards

This type of card, of course, is only available to students, but if you are a student, you should definitely try to go with a student card first.

These cards are for young adults in school who haven’t established any credit.

It is much easier to get these cards if you have no credit than it is if you have poor credit.

Several cards on the market could work, but if they don’t, the other options still are a great start.

Taking Action

There is no reason to wait around when it comes to applying for a secured card.

We have an entire secured credit card review section that goes over some of the best secured cards available on the market now.

If you have been trying to build your credit or are in the process of rebuilding your credit, then this should be one of the first steps you take in your recovery.

You should also check out our 90 Day Credit Sprint Challenge.  It is a challenge that will guide you through the steps you need to take to increase your credit score by up to 100 points in 90 days.

It is time to get back your buying power and build a credit score that opens doors.

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.