Secured Credit Card

Secured credit cards are designed for people with no credit history or poor credit, who may not qualify for ordinary credit cards. The deposit reduces the issuer's risk.

For example, a person deposits 500 and receives a secured card with a credit limit of 500. They use the card like a normal credit card and receive a monthly bill. If they fail to pay, the issuer can use the deposit to cover the debt.

The main benefit is building or rebuilding credit. Many issuers report payment history to credit bureaus, so using the card responsibly and paying on time can improve the cardholder's credit score. After a period of good use, some issuers return the deposit and convert the account to an ordinary card.

Secured cards can carry high interest rates and fees, so it is worth comparing options and paying the balance in full each month. They are especially common in the United States; in some other countries, similar products for credit building include credit builder cards and loans.