If you have ever been turned down for a credit card, or you are just beginning to build a credit history, you have probably come across the term “secured credit card.” The name suggests something more complicated than it is. A secured card is a credit card backed by cash you deposit up front. An unsecured card is what most people think of as a standard credit card, backed only by your promise to repay. The difference affects who can qualify, what the card costs and how quickly it can help you build credit.
This article compares the two in plain language. It describes typical features of consumer cards in the United States, and individual products vary, so always read the terms of any card before applying.
What Is an Unsecured Credit Card?
An unsecured credit card is the standard type of credit card. The issuer lends you money without requiring collateral, meaning nothing you own is pledged to guarantee the debt. Approval and terms depend on your credit history, income and other factors. Because the lender takes on more risk, it looks carefully at your credit record. If you do not repay, the issuer can pursue collection, report the delinquency to credit bureaus and, in some circumstances, seek legal remedies, but it does not hold a deposit it can take.
Unsecured cards come in many varieties, including cash back, travel rewards, low-APR, balance transfer, student and cards designed for fair credit. Credit limits can range from a few hundred dollars to many thousands, depending on the applicant.
What Is a Secured Credit Card?
A secured credit card requires a cash deposit that the issuer holds as security. The Consumer Financial Protection Bureau (CFPB) describes the process this way: after you are approved, you deposit money into a separate account, the bank holds it and extends a credit line that matches your deposit. If you put in $500, you can generally spend up to $500 on the card. When you pay the bill, you restore your spending amount. If you do not pay, the bank can use the deposit to cover the debt.
The CFPB adds that payments on a secured card are reported to the nationwide credit reporting companies when the issuer reports them, and that paying on time can help you build a strong credit history. Many people who pay on time for about six months or more may be able to graduate to an unsecured card, depending on the lender, and get their deposit back.
Key Differences at a Glance
| Feature | Secured card | Unsecured card |
|---|---|---|
| Upfront deposit | Required; usually sets or influences your limit | Not required |
| Who it suits | Little or no credit, or rebuilding after problems | Fair, good or excellent credit |
| Approval difficulty | Generally easier | Depends on your credit profile |
| Credit limit | Often equal to the deposit; may be modest | Set by the issuer based on your profile |
| Rewards | Uncommon, though some exist | Common |
| Fees and APR | Vary widely; some have annual fees | Vary widely; better credit typically means better terms |
| Builds credit | Yes, if reported to the bureaus and paid on time | Yes, in the same way |
| Path to upgrade | Some issuers review accounts for upgrade and deposit refund | Possible credit limit increases |
Credit Limits and Deposits
With a secured card, the deposit is the foundation. Some issuers let you deposit more than the minimum to receive a higher limit, up to a stated maximum. Others set the limit at the deposit exactly. Your deposit is typically held by the issuer in an account and is generally refunded when you close the account in good standing or graduate to an unsecured product. Ask the issuer how and when the deposit is returned and how quickly, because policies differ.
It is worth confirming that the deposit is held at an FDIC-insured institution. The Federal Deposit Insurance Corporation (FDIC) insures deposits up to $250,000 per depositor, per insured bank, for each account ownership category. That protection applies to deposits in insured banks, and it is not a feature of the card itself, so verify it with the issuer if the point matters to you.
How Each Card Affects Your Credit
Both card types can help or hurt your credit in the same ways, because the credit reporting system treats them as revolving accounts. The factors that matter most are the same for both:
- Payment history: on-time payments help; late payments hurt.
- Utilization: lower is generally better. Because secured limits are often small, a modest purchase can produce high utilization. A $150 balance on a $200 limit is 75%. Try to pay down before the statement closes.
- Account age: the longer the account is open and in good standing, the more it helps.
- Reporting: if an issuer does not report to all three bureaus, you will not get the full benefit. Confirm this before applying.
For more on these factors, see how to build and improve your credit score.
Costs to Compare
Annual and Other Fees
Some secured cards charge annual fees, and a few charge additional monthly or account setup fees. Because the goal of a starter card is to build credit at a low cost, look first for a card with no annual fee or a low one. Federal rules require issuers to disclose fees and rates in a standardized table at the time you apply, so use it to compare.
Interest Rates
APRs on secured cards are often on the higher side, and unsecured cards for fair credit can be even higher. If you carry a balance, interest could cost more than the credit-building benefit is worth. The safest approach is to treat a starter card as a payment tool: make small purchases, pay the statement balance in full and let the history accumulate. For details on how APR works, read credit card fees, interest rates and APR explained.
Other Ways to Build Credit
A secured card is not the only route. The CFPB also points to alternatives such as becoming an authorized user on someone else's account, taking out a credit-builder loan from a credit union or community lender, and, in some cases, having positive payment history reported from other bills. Which one fits depends on your circumstances. Each option has trade-offs, and none works if payments are missed.
Prepaid and Debit Cards Are Not the Same
Prepaid cards and debit cards may carry a Visa or Mastercard logo, but they generally do not build credit history, because you are spending your own money instead of borrowing. The FTC's comparison guide explains how credit, charge, secured credit, debit and prepaid cards differ, including how protections vary. If your goal is to build credit, make sure the product is a credit product that reports to the credit bureaus.
Choosing Between Them
A Secured Card May Make Sense If:
- You have no credit history or a very thin one.
- You were denied an unsecured card recently.
- You are rebuilding after missed payments or collections.
- You can afford to set aside a deposit without straining your budget.
An Unsecured Card May Make Sense If:
- You have fair to excellent credit and can qualify without a deposit.
- You want rewards or introductory offers.
- You need a higher limit than a deposit would provide.
- You want to avoid tying up cash.
Questions to Ask Before You Apply
- Does the issuer report to all three credit bureaus?
- What are the annual fee, other fees and APR?
- How large is the deposit, and can I add to it later?
- When and how is the deposit returned?
- Does the issuer review accounts for upgrade to an unsecured card?
- Is the deposit held at an FDIC-insured bank?
What Graduating to an Unsecured Card Looks Like
Moving from a secured card to an unsecured card is not a single event, and issuers handle it differently. Some review your account automatically after several months of on-time payments and mail an offer. Others require you to ask. A few simply let you apply for a separate unsecured card while keeping the secured account open. When you are reviewed, issuers typically look at your payment record on the account, your utilization and your overall credit profile at that time.
If you are offered an upgrade, ask three questions. First, will the account keep its original open date, so that your credit history is not reset? Second, when will the deposit be returned, and will it be refunded to you or credited to the card balance? Third, do the fees or APR change? If you receive an upgrade offer, compare it with other unsecured cards, since you are not obligated to stay with the same issuer.
Frequently Asked Questions
Will I get my deposit back?
Typically yes, if you close the account in good standing after paying any balance, or if the issuer upgrades you. The exact process and timing differ by issuer, so read the cardholder agreement.
Can I use my deposit to pay my bill?
The deposit is collateral, not a payment. Some issuers may apply it if you default or close the account with a balance, but you should plan to pay the bill from your own funds every month.
How long should I keep a secured card?
Until you can qualify for a better unsecured card. Even after upgrading, keeping the original account open, especially if it has no annual fee, can help your average account age.
Do secured cards always report to the credit bureaus?
No. Most major issuers do, but you should confirm before you apply. A card that does not report will not help you build credit.
Can I get a secured card with bad credit?
Often yes, since the deposit reduces the lender's risk. Approval is not guaranteed, and some issuers check for recent bankruptcies or unpaid balances at that lender.
Conclusion
Secured cards trade an upfront deposit for easier access to credit. They are a practical starting point for people building or rebuilding a credit record. Unsecured cards require no deposit and can offer richer features, but they are typically reserved for applicants with stronger credit. Whichever you use, the fundamentals are the same: pay on time, keep balances low relative to your limit and give the account time to work. If you are unsure where to begin, our guide to choosing the right credit card will help you compare specific options against your own goals.
References and further reading
- CFPB: What are some ways to start or rebuild a good credit history?
- CFPB: Credit card key terms
- FTC: Comparing credit, charge, secured credit, debit or prepaid cards
- FDIC: Understanding deposit insurance
- FTC: Free credit reports
External links lead to official U.S. government sources. Credlyze is not responsible for the content of external sites.
