How Does a Secured Credit Card Work?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

Sponsored By

Do you want to apply for a credit card but worry you’ll get denied due to your credit rating? Then, a secured credit card could be a viable option. It caters to consumers with less than perfect credit and works just like a traditional credit card. 

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

What Is a Secured Credit Card?

A secured credit card is a debt product offered through many banks and credit card issuers. You can use it to pay bills and make everyday purchases. But unlike a traditional credit card, it requires a cash deposit if you’re approved before the credit card issuer will open your account.

How Does a Secured Credit Card Work?

Here’s what you need to know about secured credit cards and how they work. 

Card Application

You’ll apply for a secured credit card the same way as you would a traditional credit card. However, as mentioned, the key difference is that you’ll also remit funds for the required security deposit before the card can be activated. 

Refundable Security Deposit

The security deposit you pay the credit card issuer is refundable. Once you’ve used the card responsibly for some time, it could be converted to an unsecured credit card. Plus, you’ll receive your security deposit back. 

You can also close the card if you no longer find it useful. The credit card issuer will deduct the amount owed from the security deposit (if applicable) and return the remaining balance to you. 

Spending Limit

Your security deposit is typically equal to your credit limit. So, to illustrate, if you apply for a secured credit card and get approved for a $500 limit, you’ll need to remit this amount to the credit card issuer before you can start using it. 

Deposit as Collateral

If you default on your credit card payments, the credit card issuer can use your deposit to pay off your balance. In most instances, they will also close your credit card account. 

Usage, Purchases, and Payments

You’re free to use the card just like you’d use a traditional credit card to make in-store or online purchases, up to the credit limit. Each month, you’ll receive a credit card statement indicating the minimum monthly payment amount (or you can choose to pay the balance in full to avoid interest). Note that your security deposit is not used to cover purchases or the minimum monthly payment amount. 

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

How Does It Differ from an Unsecured Credit Card?

Unsecured credit cards don’t require a security deposit. Consequently, they’re generally reserved for consumers with good or excellent credit scores. 

If you are able to qualify for an unsecured credit card with a lower credit score, expect to pay steep fees. In addition, the cost of borrowing, or APR, will also likely be on the higher end. 

What Are the Benefits of a Secured Credit Card?

Rebuild Credit

Secured credit cards make it easy to build credit if used responsibly. Your credit history, which accounts for 35 percent of your credit score, will improve if the credit card issuer reports payments to the three major credit bureaus – Experian, TransUnion and Equifax. It’s equally important to keep your balance at or below 30 percent of the credit limit – 10 percent or lower is even more optimal – to boost your credit rating. 


As mentioned earlier, you’ll receive your security deposit back (minus the amount you owe) if you close your account or your card is converted to an unsecured card. 


You can make purchases with your secured credit card and avoid paying interest as long as you repay the balance on or before the due date. 


A secured credit card can also help you manage your spending more effectively if used to cover recurring monthly expenses. It’s also easier to scale back on unnecessary spending since you’re limited to purchases at or below your credit limit. 


Most credit card issuers let cardholders manage their accounts from an online dashboard or mobile app. 

Is There an Alternative to a Secured Credit Card?

A bad credit score doesn’t have to stop you from accessing affordable credit. Instead, consider a flexible solution, like the Grain financial app, that offers digital credit lines to consumers with varying financial backgrounds. 

Unlike banks and credit card companies that require a credit check when you apply, Grain allows you to get pre-approved for a revolving line of credit without impacting your credit score. Furthermore, your cash flow is used to establish your credit line.

Download the mobile app to learn more about what Grain has to offer or access all the features it has to offer.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Disclaimer: Credit offer based on cash flow in the linked checking account and may require a credit check. All accounts are subject to ID verification and approval. See your Credit Agreement and Terms of Service for further details.

You may also like

A digital credit line can provide additional funds and improve your credit score. Discover the pros and cons of getting a line of credit.
Read more

Advertisement Disclosure

Product name, logo, brands, and other trademarks featured or referred to within are the property of their respective trademark holders. This site may be compensated through third party advertisers. The offers that may appear on’s website are from companies from which may receive compensation. This compensation may influence the selection, appearance, and order of appearance of the offers listed on the website. However, this compensation also facilitates the provision by of certain services to you at no charge. The website does not include all financial services companies or all of their available product and service offerings.