Secured Credit Card
Quick Answer
A secured credit card is a credit card backed by a cash deposit from the cardholder, typically used to build or rebuild credit history.
Definition
A secured credit card is a credit card backed by a cash deposit from the cardholder, typically used to build or rebuild credit history.
Explanation
Unlike unsecured credit cards, a secured card requires a refundable security deposit that typically serves as the credit limit. For example, a $500 deposit gives a $500 credit limit. The card functions like a regular credit card, reporting payment activity to credit bureaus, allowing cardholders to build their credit score over time.
Secured cards are ideal for individuals with limited credit history, poor credit, or those recovering from bankruptcy. After responsible use for 6-12 months, many issuers offer to graduate the card to an unsecured card and return the deposit.
Example
A cardholder deposits $300 for a secured card with a $300 limit. They use it for small monthly purchases and pay the balance in full each month. After 8 months, their credit score improves by 60 points.
Frequently Asked Questions
What is Secured Credit Card?
A secured credit card is a credit card backed by a cash deposit from the cardholder, typically used to build or rebuild credit history.
How does Secured Credit Card work?
Unlike unsecured credit cards, a secured card requires a refundable security deposit that typically serves as the credit limit. For example, a $500 deposit gives a $500 credit limit. The card functions like a regular credit card, reporting payment activity to credit bureaus, allowing cardholders to build their credit score over time.Secured cards are ideal for individuals with limited credit history, poor credit, or those recovering from bankruptcy. After responsible use for 6-12 months, many issuers offer to graduate the card to an unsecured card and return the deposit.
Can you give an example of Secured Credit Card?
A cardholder deposits $300 for a secured card with a $300 limit. They use it for small monthly purchases and pay the balance in full each month. After 8 months, their credit score improves by 60 points.