How to Fix Bad Credit With a Secured Credit Card

A secured credit card can help rebuild bad credit or build a credit score for someone just starting out. Secured credit cards require a cash deposit, which usually becomes the card’s credit limit. With responsible use of secured credit cards, consumers build trust with banks, which can lead to improved credit scores and the ability to get unsecured credit cards.

In this article, we’ll compare secured credit cards to prepaid cards or debit cards, which don’t help credit scores. We’ll show how to get a secured credit card, and top it off with several offers for some of the more popular secured credit cards.

Read on to find out about the differences in credit cards and how to use secured credit cards to rebuild damaged credit scores.

Traditional Credit Cards

Secured Credit Cards Three

Capital One is one of the largest companies offering traditional credit cards in the U.S. Image source:

Traditional credit cards come with predetermined credit limits based on an applicant’s credit score and income. They’re based on a simple concept: trust. Traditional credit cards are not secured by anything other than a consumer’s promise to pay back the balance in full or to at least make minimum monthly payments. Banks define consumers as being trustworthy if they have good credit scores.

Those with good or excellent credit can be approved for countless cards with perks such as cash back, rewards points, no annual fees and relatively low interest rates.

So why doesn’t everyone simply apply for and get a traditional unsecured credit card? They’re generally unavailable to people with bad credit scores and those who don’t meet minimum income requirements.

Secured Credit Cards: The Bad Credit Fix

It can be almost impossible to operate your personal finances without a credit card. Thankfully those with bad credit scores can still get a credit card, though their choices are limited and there are some gotchas.

Banks are hesitant to extend credit to those that have no credit history or who’ve watched their credit scores nosedive, whether that’s due to irresponsibility or factors beyond their control, such as a divorce or layoff. That’s exactly where secured credit cards come in. A secured credit card is a way to build that credit score without the credit card company risking money on the deal.

Secured credit cards look and act a lot like traditional credit cards, but they are secured by cash deposits held in bank accounts. Should a borrower default on a secured credit card, the bank will simply tap into the security deposit.

Banks will typically extend a credit limit on a secured credit card to match whatever a consumer puts on deposit. For example, Bank of America issues secured credit cards with limits between $300 and $4,900.

Secured Credit Card

This secured credit card offer from Bank of America requires a minimum deposit of $300. The offer is available to those with bad credit scores. Image source:

After 12 months of issuing a secured credit card, Bank of America reviews the consumer’s account and removes the security deposit requirement if payments were met on time and user’s credit score has improved. In some cases, banks will not remove the security deposit after a year if there are late payments or other new negative items on a secured credit card user’s credit report.

Why Get a Secured Credit Card? 

Getting a secured credit card might sound a little counterintuitive. After all, why would you pay a $500 deposit just so you could get a credit card with a $500 spending limit?

The answer is, just like with regular cards, every time a consumer uses a secured credit card to buy something, it helps their credit score. The financial institutions learn, therefore, that they can trust the person more and more. In some cases, in return for continued responsible use of a secured credit card, the issuer will even raise the card’s credit limit.

Secured Credit Card Wells Fargo

This screen grab of a secured credit card offer from Wells Fargo shows that borrowers can deposit any amount up to $10,000 to set their own limit. Source:

Secured Credit Cards vs Prepaid Credit Cards

Be aware, though, that secured credit cards aren’t the same as prepaid cards. Prepaid credit cards are reloadable and act like secured credit cards in many ways. Just like with secured cards, prepaid cards require an up-front deposit and that deposit becomes the card’s credit limit. But with prepaid cards, the cardholder is just taking out the money they already put into it. That means there’s no actual “credit” being used.

With a secured card though, the bank holds the security deposit, then lends the cardholder money of their own. Sounds like double-talk, but the end result is that prepaid cards won’t help a bad credit score, while secured cards will.

How to Get a Secured Credit Card

Most banks, credit card companies, credit unions and other financial institutions offer some kind of secured credit card. But all secured credit card offers are not equal, so shopping around a little can save real money for consumers.

Secured Credit Card U.S. Bank

This screen grab of a secured credit card offer from U.S. Bank shows fraud protection and automatic bill pay features. Image source: U.S.

Some secured credit cards have annual fees and other fees, while others don’t. Among the cards that do have fees, some fees are reasonable, while others are extremely high, so always read the fine print.

Secured cards come with different options too, depending on the different financial institutions that offer them. For instance, some secured credit cards come with credit tracking, while some come with quick approval or the ability to raise the credit limit in the future. See below for a few examples of different secured credit cards.

A Few Examples of Secured Credit Cards for Bad Credit

Bad Credit Credit Card Capital One

Capital One’s secured credit card comes with free access to the owner’s credit score. That’s a handy add-on for someone trying to build or re-build credit. Based on whether monthly payments are made faithfully, the card’s credit limit may increase above the amount of the security deposit.

Secured Credit Card First National

First National Bank’s secured credit card lets the owner set their own credit limit based on whatever initial security deposit amount they choose.

Bad Credit Card First Progress

The First Progress secured credit card lets users get their card faster with an expedited processing option.

Secured Credit Card First Choice Bank

The Primor secured credit card from First Choice Bank has no application fees.

Bad Credit Card USAA Secured

USAA’s secured credit card puts the applicant’s security deposit into a 2 year CD that earns interest in the background.

Secured Credit Cards: A Good First Step to Building Good Credit

Secured credit cards can be a lifesaver for someone just starting out who needs to build good credit. They can also help someone who’s had some financial trouble and needs to rebuild a bad credit score. They’re relatively easy to get, they come with all the convenience of regular credit cards, and they’ll help build up a solid credit score as well.