What is a Secured Credit Card and How Does it Work?

Secured credit cards are designed to help you build credit. To open a secured credit card, you need to make a security deposit, which is usually the same as the card’s credit limit.

You can use a secured credit card to make purchases the same way you would with an unsecured credit card. Over time, using your secured credit card responsibly can help you improve your creditworthiness.

If you’re considering opening a secured credit card, here’s what you need to know.

What is a secured credit card?

A secured credit card is a type of credit card that requires a security deposit. If you can’t make payments, the card issuer can use your deposit to cover any outstanding balance. This allows issuers to work with people without a substantial credit history. Most of the time, the security deposit is equal to the credit limit.

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 way for people with limited credit history to build their credit.

After applying for a secured credit card, you will be asked to put down a deposit. The amount of your deposit will typically equal the card’s credit limit.

This deposit is the main difference between secured and unsecured credit cards. You can use your secured card like other credit card to make purchases.

Unlike a debit card, the Citi^® Secured Mastercard^® is a credit card that helps build your credit history with monthly reporting to all 3 major credit bureaus. So, your positive payment habits will work to help build your credit history.

How secured credit cards help to build credit

There are several ways a secured credit card can help contribute to building your credit score.

The right secured credit card will report your on-time payments to the credit bureaus, helping to build your credit history. Keeping your account open 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.

Be sure to choose a secured credit card that reports to all 3 major credit bureaus. If available, take advantage of the free credit monitoring provided by some secured credit card issuers.

Secured vs. unsecured credit cards

The key difference between secured and unsecured credit cards  is the security deposit. Secured credit cards require a security deposit, which is usually the same amount as the card’s credit limit. This deposit acts as collateral, making it easier for those with limited or poor credit histories to qualify. 

In contrast, unsecured credit cards require no security deposit. Instead, lenders determine your credit limit based on factors like creditworthiness, income and debt-to-income ratio. These cards are more likely to offer rewards programs where cardholders can earn points, miles or cash back, making them a preferred choice for those with established credit.

While unsecured cards typically provide more benefits and rewards, secured credit cards are designed to help build or rebuild credit.

Tips for using a secured card to help build credit

Use your card regularly but try to avoid approaching your credit limit: Keeping the amount of credit you use below 30% can help boost your credit score, while maxing out a card — even temporarily — may result in a decrease to your credit score.

Pay your full statement balance by the due date every month: This can help keep you from accruing too much debt and avoid paying interest on purchases.

Track your credit score: Once your credit hits the very good to excellent range, it may be time to reach out to your card issuer about upgrading to an unsecured card — which typically will also let you get back your security deposit.

Pros of secured credit cards

Secured credit cards allow you to enjoy many of the same benefits offered by unsecured credit cards while building your credit. 

It's easier to get approved

A benefit of secured cards is the easier application criteria. While it’s still possible to be rejected for a secured credit card, they are designed for people just beginning their credit journey.

You can begin building credit

Using a secured credit card for purchases you already routinely make and paying the statement balance on time each month is a simple way to start building your credit.

You can access many of the same benefits as unsecured credit cards

Many credit cards  often come with a variety of benefits and rewards. While secured credit cards typically do not offer rewards, they can still offer valuable benefits like $0 liability on unauthorized purchases, credit monitoring and the ability to add your card to a digital wallet.

Cons of secured credit cards

Like any financial product, there are some potential drawbacks to choosing an unsecured credit card. 

Security deposit

While you have your secured credit card, you can’t access the money you used for your security deposit. The deposit is refundable, though – if you upgrade to an unsecured card or close the account, you’ll get your money back.

Secured cards may have a low credit limit

Secured credit cards may offer a lower credit limit than many unsecured credit cards.  Since a secured credit card typically requires you to make a security 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 Citi branches. You will need to provide some personal identifying information to apply, including your name, address and SSN or ITIN.

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.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.