How to Build Your Credit History with a Secured Credit Card

Building your credit history opens up many doors in the U.S., but if you don’t have one yet, what are your options?

This is where secured credit cards come into play. They’re the most common way for people to build, or even repair their credit. It allows a person to demonstrate how financially responsible they are and therefore gain access to other types of credit or loans in the future.

This guide will help explain what a secured credit card is and how it can help you reach your financial goals.

How do secured credit cards work?

Secured credit cards require an initial cash deposit and this deposit works as a collateral to your line of credit. It’s a guarantee to the card issuer that you have the funds to cover your expenses.

The security deposit also helps determine your credit limit. However, these amounts aren’t always the same. According to the Federal Trade Commission (FTC), your credit limit could be anywhere between 50% and 100% of your initial deposit. The exact amount will depend on the card issuer and your credit history.

Note that you won’t be able to withdraw the security deposit as long as you want to continue using your secured credit card. You’ll also need to continue making timely payments to your credit card. 

On their end, the bank or credit card company will report your monthly on-time payments, outstanding balance and the amount of your monthly payments to the credit bureaus, ensuring your credit history grows. 

Keep in mind: After you’ve established a credit history and improved your credit score through the secured card, the bank that issued the card or another financial institution could offer you a traditional unsecured card. When that happens, you’ll be able to withdraw your initial deposit.

Differences between secured and unsecured credit cards

The main difference between a secured and an unsecured credit card is that, to get a secured card, you need to provide an initial deposit to the lending institution. With traditional cards, you don’t need to finance your own line of credit.

Because of this collateral, approval is often easier with secured credit cards. Especially if you lack credit history, using this type of card responsibly can offer an opportunity to improve your credit.

Keep in mind: In some cases, secured credit cards charge a higher interest rate than traditional cards. They may also include annual fees or monthly maintenance charges. To avoid unexpected costs, we recommend reading all of the fine print about your secured credit card. You should also ask the issuer questions and review your budget to make sure you are able to afford these payments.

Differences between debit cards and secured credit cards

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By requiring an initial deposit, secured credit cards may seem similar to debit cards, however, they are two very different types of financial instruments.

Your secured credit card’s collateral is a backup that provides a guarantee to the issuer. With this security deposit, they are able to lend you the money. In case you’re unable to pay your balance, this deposit can cover payment for your loan. On the other hand, the money that is available in your debit card is a prepayment, meaning you need to continuously load the account in order to use funds. 

The main purpose of secured credit cards is to help build or repair your credit. For this reason, they require monthly payments that get reported to the credit bureaus. If you pay your secured credit card on time, you’ll prove your credit worthiness and improve your credit score. However, you should keep in mind that a secured credit card could also damage your credit if you fail to pay on time.

Keep in mind: Debit cards like PODERcard do not require monthly payments and have no hidden fees. On the other hand, it doesn't report monthly payments or banking activity to the credit bureaus. 

How to get a secured credit card?

Secured credit card applications are a quick and easy process that you can complete online. They are also available to fill out in person at a bank or credit union branch. 

Despite the ease of the process, it’s best to limit the number of applications you submit. Remember that the initial deposit doesn’t guarantee that the secured credit card issuer will approve your request. Each application that you submit could lower your credit score by a few points. For this reason, it’s best to review your available options and the requirements before sending your applications.


The requirements for applying to a secured credit card vary depending on the card issuer. However, most financial institutions request the following:

  • Being over 18 years old
  • Live and have a permanent address in the United States
  • Provide proof of income
  • No history of bankruptcy

If you meet these conditions, it’s time to find the best secured credit card for you! 

The FTC points out that these are some key points to consider when choosing a card:

  • What is the initial deposit amount?
  • What type of interest rate does the card offer?
  • What are the annual and monthly fees associated with the card?
  • Will the issuer report your payments to the credit bureaus?
  • What happens if you fall behind on your payments?
  • How soon can you apply for an unsecured credit card and get your deposit back?

Advantages of a secured credit card

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Although they require an initial deposit as collateral, secured credit cards offer many advantages that are especially useful when trying to establish credit history or improve your credit score. The following are some of the benefits you could enjoy by using a secured credit card responsibly:

Helps build your credit

With a secured credit card, you can start to build or rebuild your credit history. This makes them a good option for people who have never had a card or who want to repair their credit. This is the reason they’re also known as “second opportunity credit cards.”

By reporting activity to the credit bureaus, these types of cards can help you establish a record of timely payments. But, for this to happen, you must make your payments on time and keep a low balance on your card.

Easy to use

Secured credit cards are as easy to use as traditional credit cards. You can use them to shop online or pay at any location that accepts cards.

Payment methods vary from one company to another. Most secured credit card companies accept electronic payments through their website or mobile app. In some cases, you may also be able to pay in person if the issuer has branches near you.

Greater chance of being accepted

With your initial deposit, financial institutions minimize the risk of issuing a secured credit card. This is why secured credit cards can be easier to obtain.

If you have cash available to cover this initial deposit and you want to improve your credit, a secured credit card could be a great option.

First step toward an unsecured credit card

After paying your secured credit card on time for an extended period of time, it’s likely that the issuer will offer an unsecured card. This could happen anywhere between 6 and 18 months after using your secured credit card. During this time, you may also receive credit offers from other banks or financial institutions.

This means an opportunity to lock in a better interest rate, higher credit limits or lower annual fees. Making the transition from a secured to an unsecured credit card also looks good on your credit report. It can help you get access to more favorable credit in the future.

Refundable deposit

If you decide to move on to an unsecured credit card, the issuer will refund your initial deposit. For many card users, this is a benefit because it allows them to keep that money aside instead of spending it on other things.

The FTC also points out that some secured credit card companies also pay interest on your security deposit. If this is the case for you, it means that you may even receive a small profit while improving your credit and getting access to an unsecured card.

Tips to use your secured credit card

The Consumer Financial Protection Bureau (CFPB) shares the following advice to make the best use of credit cards and improve your credit score:

  • Make your payments on time: By keeping up with your payments you’ll demonstrate good financial habits. Whenever possible, set up automatic payments or use reminders to avoid delays. It’s important to point out that paying more than your monthly minimum or making multiple payments each month also looks good on your credit report.
  • Limit your credit usage: The percentage of credit limit used is an important part of your credit score. Experts recommend using 30% or less of your available credit and, if possible, paying off your outstanding balance each month.
  • Establish long-term relationships with your borrowers: Having accounts in good standing for a long period of time is also important. The longer your accounts have been current, the better.
  • Only request the credit that you need: Applying for many lines of credit could lower your score. Often, the credit bureaus interpret this as a negative change in your financial situation.
  • Review your credit score often: Doing so will allow you to prevent fraud or spot it quickly. Monitoring your credit score also allows you to identify opportunities in which you can improve your credit history.

Secured credit cards - a good option to consider

When a credit card issuer is getting to know you, a secured card can reduce their risk and provide the guarantee they need to establish a relationship with you. If you’re in need to building or repairing your credit, this could be a great option. 

If you have more questions about how secured credit cards work or how to apply for one, feel free to ask us! The team at SABEResPODER is available to chat and help you build a good credit history in this country.