What is a secured credit card?

A Secured Credit Card

A secured credit card is nothing more than a credit card that is secured by a deposit of cash that acts as a security interest for the credit provided.  Based on an applicant’s credit score, the security might range from 20% of the line up to the entire amount of the credit line extended.

Secured Credit Card Options

For example, let us assume that Bank A wants to offer a secured credit card to John who has a very low credit score.  Bank A may require John to deposit $500 into a bank account before it will extend him a $500 credit line on the credit card.  Once the $500 is in place, John is able to use his credit card as anyone else would.  Over time, he would be establishing good credit while the bank has no risk of none payment because it can always take the $500 from John’s bank account.  But, if Bill has a better credit rating, for the same $500 deposit, he might be extended a credit line of $2000.

In either instance, a secured credit card from a reputable bank requires that the holder of the credit card provide some form of a security interest against a default or delinquency. This is the primary difference between a secured credit card and a traditional credit card.