What is a secured charge card and should you get one?

A secured charge card lets you spend only the money you’ve already put into your account. As you make purchases, those funds are set aside to pay your bill in full each month, so you can build credit without borrowing and lowering your risk of debt. Because your payments are reported to the credit bureaus, using the card responsibly can help you build or rebuild your credit score over time.

Building credit from scratch, or rebuilding after missed payments or defaults, can feel intimidating. It is worth doing, though. Your credit score can affect not only interest rates you are offered on loans, it can also factor into housing applications, some job applications and even insurance premiums.

What is a secured charge card?

A secured charge card is a card that limits your spending to the amount of money available in your account. As you spend, your financial institution holds those funds in reserve so that your bill is covered in full at the end of the month.

Secured charge cards are typically designed for people with little credit history or poor credit. When your issuer reports your monthly payments to the credit bureaus, those on-time payments can help raise your credit score over time, without the risk of running up a balance that comes with unsecured credit cards.

How does a secured charge card work?

With a secured charge card, your account balance or security deposit (depending on the card) sets your spending limit. For example, if you have $200 in your account, you can spend up to $200. Your financial institution holds the money you spend in reserve so the funds are there to pay your bill each month.

If you are considering a secured charge card, look for one that reports your monthly payments to the three major credit bureaus: Equifax, Experian and TransUnion. Consistent, on-time payments reported to the credit bureaus are what help raise your credit score.

Card policies vary by issuer. Some secured charge cards require an upfront security deposit. Others let you open an account without funding it, although you will need to add money before you can use the card, since the amount in your account determines how much you can spend. When no security deposit is required, none of the money you add is locked up and unavailable to you.

Here is how using a secured charge card works, step by step:

1. You open an account. Many financial institutions, including online banks and fintechs like Current, offer secured charge cards. Look for one with a low or no required security deposit that reports to all three major credit bureaus. If you want to see what the setup looks like for one secured charge card, this step-by-step guide walks through the process.
2. You use your card. You can use a secured charge card the way you would use any other credit card. Your limit is the amount of money you have deposited into your account.
3. You make payments. As you spend each month, your financial institution holds those funds in reserve. That means you always have the money to pay your balance in full at the end of the month.
4. Your on-time payments can help your credit. If you make consistent on-time payments and your issuer reports them to the credit bureaus, your credit score can improve over time.

What are the benefits of a secured charge card?

A secured charge card offers three main benefits, especially if you are building or rebuilding credit: it can improve your credit score, it carries a low risk of debt, and it is usually easier to get than an unsecured credit card.

• A secured charge card can improve your credit score. If you make on-time payments that your card issuer reports to Equifax, Experian and TransUnion, you have a good chance of improving your credit score. If you are also carrying debt on an unsecured card, the process may take longer.
• A secured charge card lowers your risk of debt. Because you can only spend the money already in your account, the risk of falling into debt is low, while your on-time payments still help your credit.
• A secured charge card is easier to obtain. These cards can be easier to get than unsecured credit cards, even if you have poor credit or little credit history. Most secured charge cards do not require a credit check.

Should I get a secured charge card?

A secured charge card is a good fit if you have little credit history or are rebuilding your credit after setbacks. It gives you a way to build a record of on-time payments while minimizing risk of accumulating debt.

If you already have an unsecured credit card and pay the balance in full every month, a secured charge card is probably not necessary. You are already building the same kind of positive payment history.

Secured charge card FAQ

Is a secured charge card the same as an unsecured credit card?

No. A secured charge card uses the money you deposit as your spending limit, so it carries low risk of debt. With an unsecured credit card, your issuer sets a spending limit based on a variety of factors, and if you do not pay the balance in full each month, you are charged interest on what remains. That makes an unsecured credit card a significantly higher risk for accumulating debt.

Does a secured charge card require a credit check?

Most secured charge cards do not require a credit check, though policies vary by issuer. Always confirm with the issuer before applying.

Can a secured charge card build your credit score?

Yes. A secured charge card can build your credit score if your card issuer reports your activity to the three major credit bureaus and you make your payments on time.

Can a secured charge card hurt your credit score?

A secured charge card can only hurt your credit score if you miss payments. That risk is much lower than with an unsecured card, because the funds for your monthly payment are already held in reserve. If your account offers auto-pay, turn it on so you never miss a monthly payment.