A secured credit card is a credit card backed by a cash deposit. This deposit acts as collateral against any debt on the secured card, which allows card issuers to work with people without a substantial credit history.
Secured credit cards help people who might not qualify for unsecured credit cards build their credit and demonstrate responsible credit card usage. They can also offer many of the same benefits as unsecured credit cards.
How secured credit cards work
Secured credit cards offer a credit card that people with limited credit history can qualify for and begin building their credit.
After applying for a secured credit card, you will be asked to put down a cash deposit. The amount of your deposit will typically equal the credit limit of your card.
This cash deposit is what separates a secured credit card from an unsecured credit card. Once you have your secured credit card, you can use it like any other credit card to make purchases. And like any other credit card, secured credit cards from major card issuers should report to all three major credit bureaus — TransUnion, Equifax, and Experian. That means your positive payment habits will work to build your credit history.
Do I qualify for a secured card?
Secured credit cards are great options for people who may not qualify for unsecured credit cards, because they do not have a long credit history.
However, there are still potential reasons people can be denied a secured credit card. Some card issuers have automatic rejections for people who have opened too many new credit cards within the past year, or who have a recent bankruptcy.
How secured credit cards help to build credit
There are several ways that a secured credit card can help contribute to building your credit score.
Be sure to choose a secured credit card that reports to all three major credit bureaus, and also take advantage of the free credit monitoring provided by some secured credit cards.
The right secured credit card will report your on-time payments to the credit bureaus, helping to build your credit history. If you do not have many lines of credit, maintaining your secured credit card over a period of time can also help build your average account age. If it is your only credit card, it may also add diversity to your credit mix.
Tips to use a secured card effectively
1. Use your card regularly but try to avoid approaching your credit limit. Keeping the amount of credit you use below 30% will boost your credit score, while maxing out a card — even temporarily — may result in a ding.
2. Pay your full statement balance every month. By paying your full statement balance you keep yourself from accruing debt, and also avoid paying interest on purchases as long as you pay the full balance every month within the grace period.
3. Track your credit score and once your credit reaches the high average to excellent range, it may be time to reach out to your card issuer about upgrading to an unsecured card — which also will let you get back your security deposit.
Pros & cons of secured credit cards
Pro: It's easier to get approved for a secured credit card
The main benefit of a secured credit card is the broader application criteria. While it is still possible to be rejected for a secured credit card, they are designed for people just beginning their credit journey or recovering from poor credit.
Pro: You can begin easily building your credit
Using and repaying a credit card is a simple way to start building your credit while making the purchases you already make.
Pro: You can access many of the same perks as unsecured credit cards
Modern credit cards come bundled with a variety of exciting perks, and while secured credit cards typically do not offer rewards, they can still offer valuable benefits including $0 liability on unauthorized purchases, credit monitoring and the ability to add your card to a digital wallet.
Con: The security deposit
While you have your secured credit card, your security deposit will be unavailable to you — whether that's a few hundred or a few thousand dollars, it can definitely be a frustration. The security deposit can also be an initial barrier towards getting the secured credit card you want.
Con: Secured cards may have a low credit limit
Secured credit cards typically offer a lower credit limit than standard credit cards. Regardless of the maximum limit offered, since a secured card requires you to make a deposit equal to the credit limit, the credit limit can't exceed the amount you can afford to set aside.
How to apply for Citi's secured credit card
You can apply for the Citi® Secured Mastercard® easily online or at any Citi branch. You will need to provide some personal identifying information to apply, including your name, address and Social Security Number.
To qualify for the card, you will need to meet Citi's qualification criteria, which will include a review of your income and outstanding debt, among other things.