A secured credit card is issued by a financial institution, bank or credit card union. This type of card is obtained through a required security deposit from the persons wishing to acquire the card. This deposit is used as collateral when making purchases with the card. 

If you default on your payments, then your security deposit is kept by the issuer. 

The credit limit on your card is mostly equal to your security deposit. Dependent upon the issuer/card you choose and your previous ratings, they have the ability to grant you a limit that is more or less than your deposit.

As mentioned earlier, your credit history or lack of it, if you are a first time applicant has a huge impact on your FICO score. If you have poor credit history and are wishing to re-establish your credit name, obtaining a secured credit card is one of the most efficient methods for you. When making any commitment to your name, it is essential to be aware of its benefits and disadvantages.


• Secured credit cards offer the smoothest route in application than other credit cards.

• Your payment history with your secured credit card can be used to apply for a traditional credit card later based on your credit score history. Thus, you can use your secured credit card to build a good credit score.

• If you want to build a good credit score, and the ability to apply for a card with a bigger limit, or more benefits of a good score, then a secured credit card is the right place to start.

• Depending on the card you are getting, you might also be able to earn interest on your credit card, as some issuers of secured credit card place your deposit in an interest-bearing security account, so depending on the interest rate and your issuer you might be able to earn a few bucks on your security deposit, along with enjoying the benefits of the card. 


• It is difficult to get a card without any credit history, but even when you are thinking about a secured credit card, you might not be able to apply for it easily unless you have a good security deposit.

• If you are already on a budget you might not be able to afford a card, since apart from the deposit there is an additional fee added to apply for the card, processing it, and annual fee for using the card. Thus, before applying for a card search around and apply for a card with lowest fee.

• The interest rates on secured credit cards are kept higher because of risk of default, but you can avoid additional charges if you pay your balance timely every month.

Regardless of these slight cons, if your credit score is low or zero, unlike prepaid cards, a secured credit card history will count towards your score, and help you build a solid credit report for yourself.