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What are secured credit cards and how do they improve your credit score?

July 22, 2021|

Secured credit cards (also known as credit cards with guarantee) are different than common credit cards in that they require an initial deposit from your part to open the account. This deposit is later refundable to you. Normally, these cards are used by people with bad or no credit that want to improve or establish their credit record since these cards report your payment history directly to the three main credit bureaus.

This means that by using these credit cards responsibly, you will automatically improve your credit score. Once you improve your credit score, you will be eligible for other credit cards with better rates, lower interests, and many other types of credits for example loans which you would not be able to apply to with a bad or low credit score.

In this article we explain the following important points to know when it comes to secured credit cards:

  • Advantages and disadvantages
  • How to use them correctly


Advantages and Disadvantages of Secured Credit Cards

When you have bad or no credit, you are considered a liability for the bank or financial institution, because they don’t see any proof that you will be able to pay the amount they lend to you. With secured credit cards, you are giving an initial deposit, meaning that in case you fail to honor your payments, the bank or financial institution can always get their money back by taking it from that deposit. This way they are sure to get their money back one way or another and thus, are much more willing to give you the credit you’re looking for. In many cases, the amount of the deposit is the limit to your credit. In other words, if you initially deposited $200, your credit limit on your card will be $200 per month.

The good news are that if you use your secured credit card responsibly for 5-12 months your initial deposit will be reimbursed to you and your credit score will be improved. This will help you to qualify to common (non-secured) credit cards with higher credit limits and lower interest rates. Many secured credit cards also allow you to upgrade to a better non-secured credit card automatically after a couple of months of using it responsibly.


  • Secured credit cards report your payments to the main credit bureaus to help you improve your credit record by making your payments on time.
  • They help people with bad or no credit to get access to a credit card.
  • Some cards have “cash back” programs that give you back a certain percentage of the amount of your purchase on qualified purchases.
  • The deposit you make to get the card is fully refundable.


  • Low credit limits and the need for an initial deposit to open the account.
  • You accumulate interests on unpaid funds (just like with normal credit cards).
  • Some secured credit cards have annual costs (try to apply only to cards with no annual costs to get the most profit from your money).

If you need help comparing secured credit cards, one of our agents can assist you for free! Schedule your appointment right away:


How to use secured credit cards effectively?

Make sure to use your secured credit card responsibly and follow the following tips to get the most out of your card and improve your credit score as much as possible:

  1. Use your card for some purchases, but don’t exceed 30-50% of the monthly limit to obtain the best results with your credit.
  2. Pay the complete amount you have used in that month on time to not get charged with interests and this way get a good payment history with the credit bureaus.
  3. Check on your credit score every now and then once you notice an improvement, so that you can request an increase in the limit or an upgrade to a normal credit card.

By using a secured credit card responsibly a lot of people get a notable improvement in their credit score in as soon as 6-12 months. When this improvements is reflected on your credit, you can try to get an upgrade to your credit limit or request an upgrade from your secured credit card to a normal credit card since many companies allow the upgrade from a secured to a normal card without having to open a new account, which may be better for your credit record.

Difference between secured credit cards and pre-paid cards? 

Secured credit cards and pre-paid cards sound a lot alike, however they are very different. In simple terms, with a prepaid card you’re using your own money to make your purchases through your card -instead of money lent to you by the credit company.

Since pre-paid cards don’t use a credit line, these cards don’t report to the credit bureaus, meaning they don’t help you to improve you credit record as secured cards do.

In other words, if you’re goal is to establish or improve your credit record, secured credit cards are your best bet. Also, Personal loans can be a good idea to establish a credit. There are even options for personal loans for people with bad credit that can help persons that are not applicable to a loan because of their lack of good credit records.

Other Resources for Secured Credit Cards:

For more information on secured credit cards or any other financial information, we always recommend to check with the  CFPB (Consumer Financial Protection Bureau) and FCC (Federal Communications Commission). These sites offer financial news and tips on how to avoid frauds online: If you have any doubts about secured credit cards for people with bad or no credit, don’t hesitate to contact one of our experts by calling (855) 221-2006. They will offer guidance and information completely free of charge for you!

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Para más información sobre recursos financieros para ayuda por COVID-19 o cualquier otra información financiera te recomendamos siempre revisar con el CFPB (Consumer Financial Protection Bureau) y FCC (Federal Communications Commission). Estos sitios dan información y noticias de finanzas personales las cuales te dan tips para evitar fraudes en línea.

Si tienes más dudas acerca de cuentas de ahorros, no dudes en contactar uno de nuestros expertos llamando al (855) 221-2006, donde podrás obtener una consulta completamente gratis!

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