What makes a secured card worth using

A secured card works the same way as any other credit card — you charge purchases, get a monthly bill, and build a credit history when you pay on time. The difference is that you put down a cash deposit upfront, usually between $200 and $2,500, which becomes your credit limit. That deposit sits in a bank account while you use the card, and the bank holds it as security in case you stop paying.

The cards worth your time are the ones that don't charge you extra for that security. Many secured cards add annual fees, monthly maintenance fees, or both on top of the deposit you've already put down. The best ones keep those costs low or eliminate them entirely, so the only real cost is the interest you pay if you carry a balance — which you shouldn't, because the whole point is to build credit, not to pay interest.

What separates a good secured card from a mediocre one is whether the issuer will graduate you to an unsecured card after you've shown you can pay reliably. Some do this automatically after 6 to 18 months of on-time payments. Others require you to ask. A few never do, which means you're locked into a secured product forever.

Key Takeaways

  • The best secured cards charge no annual fee and no monthly maintenance fee, so your only cost is interest if you carry a balance.
  • Your deposit becomes your credit limit, so a $500 deposit gives you a $500 limit — the deposit itself is not a fee.
  • Cards that graduate to unsecured status after consistent on-time payments let you recover your deposit and move to a regular credit card.
  • APR (annual percentage rate) varies by card and your creditworthiness, so compare the range each issuer offers before you open an account.
  • Using 10 to 30 percent of your limit and paying the full balance each month builds credit faster than carrying a balance or using very little of the card.

Cards with no annual fee

Capital One Secured Mastercard charges no annual fee and no monthly fees. Your deposit of $49 to $2,000 becomes your credit limit. Capital One reports to all three credit bureaus (Equifax, Experian, and TransUnion), so your payment history shows up on your credit report. After six months of on-time payments, you can ask Capital One to review your account for graduation to an unsecured card, though approval is not may provide.

Discover Secured Card also charges no annual fee. Your deposit of $200 to $2,500 becomes your limit. Discover reports to all three bureaus and offers cash back on purchases — typically 2 percent at gas stations and restaurants, 1 percent elsewhere — which is unusual for a secured card. After eight months of on-time payments, Discover will review your account for graduation. The APR range is typically 16 to 24 percent, depending on your credit profile.

OpenSky Secured Visa has no annual fee, no credit check, and no deposit requirement — instead, you choose your own credit limit between $200 and $3,000 and that amount is held as security. This makes it an option if you don't have cash available right now. OpenSky reports to all three bureaus. The APR is fixed at 20.99 percent for all cardholders, so there's no variation based on your credit score.

Cards with low annual fees

Chime Secured Credit Card charges a $200 deposit, which becomes your credit limit, plus a $0 annual fee. Chime is designed for people with little to no credit history and reports to all three bureaus. The card has no interest charges if you pay your full balance by the due date, but the APR is 24.99 percent if you carry a balance. Chime also offers early direct deposit, which can get your paycheck into your account up to two days early.

Citi Secured Mastercard requires a deposit of $200 to $2,500 and charges a $0 annual fee for the first year, then $39 per year after that. It reports to all three bureaus and offers a path to graduation after 18 months of on-time payments. The APR range is typically 18 to 24 percent. Citi's main advantage is that the first year is truly free, which gives you time to prove you can manage the card before any annual fee kicks in.

How to compare cards before you open one

Write down the deposit amount you can afford right now. This is your credit limit, so a $300 deposit means you can charge up to $300. Don't stretch to a higher deposit just to have a bigger limit — you'll build credit just as fast with a smaller limit, and you'll have less money tied up.

Check the APR range for each card. This is the interest rate you'll pay if you carry a balance. Most secured cards range from 16 to 25 percent. The range exists because the actual rate you get depends on your credit score and credit history. You won't know your exact rate until after you open the account, but you can compare the ranges to see which cards are more likely to offer lower rates.

Confirm that the card reports to all three credit bureaus. If a card only reports to one or two, your payment history won't show up on your full credit report, which defeats the purpose of building credit. Every card listed here reports to all three.

Look for a path to graduation. Some cards will automatically review your account after a certain number of months of on-time payments. Others require you to call and ask. A few don't offer graduation at all. Graduation means you get your deposit back and the card converts to a regular unsecured card, so this matters for your long-term plan.

What happens after you open the account

Your deposit will be held in a separate account at the bank, usually earning little to no interest. You won't be able to touch it while the card is active. The bank will send you a card in the mail within 7 to 10 business days, and you can start using it right away.

Make a small purchase in the first week — a gas station fill-up or a grocery trip — and pay the full balance when the bill arrives. This shows the bank that you can use the card and pay it back. Repeat this every month. Using 10 to 30 percent of your limit and paying the full balance each month is the fastest way to build credit.

After six to eighteen months of on-time payments (depending on the card), the issuer will either automatically review your account or you can call and ask for a review. If approved for graduation, your deposit will be returned to you, usually within 5 to 7 business days, and your card will convert to an unsecured card with a new credit limit.

Mistakes that slow down your credit building

Carrying a balance from month to month costs you money in interest and doesn't build credit any faster than paying in full. The credit bureaus care that you pay on time, not that you pay interest. If you can't pay the full balance, pay as much as you can, but aim to pay in full every month.

Using almost none of your limit — charging $10 a month on a $500 limit — builds credit, but more slowly than using 10 to 30 percent. The credit bureaus look at your utilization ratio (how much of your limit you're using), and very low usage doesn't show that you can manage credit responsibly.

Missing a payment, even by a few days, will be reported to the credit bureaus and will hurt your credit score. Set up automatic payments for at least the minimum due, so you never miss a important date. If you can, pay the full balance automatically each month.

Opening multiple secured cards at once will trigger multiple hard inquiries on your credit report, which can lower your score temporarily. Open one card, use it responsibly for at least six months, and then consider a second card if you need to.

When a secured card is the right choice

A secured card makes sense if you have no credit history, a very low credit score (below 580), or a recent negative event like a late payment or collection account. It's also the right choice if you've been denied for regular credit cards and need a way to start rebuilding.

A secured card is not the right choice if you already have a credit score above 650 and can get approved for a regular credit card. A regular card will build your credit just as fast and won't require you to tie up a deposit. If you're not sure whether you can get approved for a regular card, explore for one first — a rejection won't hurt your credit, but it will tell you whether you need to start with a secured card.

If you're using a secured card to rebuild after a bankruptcy or foreclosure, plan to keep it open for at least two years. The longer your account stays open with on-time payments, the more it helps your credit score recover.

Frequently Asked Questions

Can I use my deposit as a payment if I can't pay my bill?

No. Your deposit is held separately and cannot be used to pay your bill. You must pay your bill from your regular income or savings. If you miss a payment, the bank will not automatically take money from your deposit — they will report the missed payment to the credit bureaus instead.

What's the difference between a secured card and a prepaid card?

A secured card is a credit card backed by a deposit. You build a credit history because the issuer reports your payments to the credit bureaus. A prepaid card is not a credit card — you load money onto it and spend that money. Prepaid cards don't build credit because they're not reported to the credit bureaus. If you want to build credit, you need a secured credit card, not a prepaid card.

How long does it take to graduate from a secured card to an unsecured card?

Most cards review your account after 6 to 18 months of on-time payments. Discover reviews after 8 months, Capital One after 6 months, and Citi after 18 months. Approval is not may provide — the bank will look at your payment history, credit utilization, and overall credit profile. If you're denied, you can ask again after a few more months of on-time payments.

Will my credit score go down when I open a secured card?

Yes, temporarily. Opening any new credit account triggers a hard inquiry, which can lower your score by a few points for a few months. But as you make on-time payments, your score will recover and then improve. The long-term benefit of building a positive payment history outweighs the short-term dip.

Can I get my deposit back before the card is graduated?

Not usually. Your deposit is held as security for the life of the account. If you close the card before graduation, most issuers will return your deposit within 5 to 7 business days, but closing the card will hurt your credit score because it shortens your average account age. It's better to keep the card open and wait for graduation.