What is a Secured Credit Card and How Does it Work?

Key insights:

• A secured credit card requires a security deposit that typically equals your credit limit, making it accessible for people with limited credit history
• The Citi^® Secured Mastercard^® reports to all 3 major credit bureaus, helping you build credit with responsible use
• Secured cards can offer similar protections to unsecured cards, including $0 liability on unauthorized charges and fraud monitoring
• Your security deposit may be refundable when you close your account or upgrade to an unsecured card

Secured credit cards offer a way to build credit when you’re just starting out or working to strengthen your creditworthiness. You’ll need a security deposit to open an account, typically equal to the credit limit. Over time, using this type of credit card responsibly can help you improve your creditworthiness.

If you’re considering opening a secured credit card, here’s what you need to know.

What is a secured credit card?

A secured credit card is a type of credit card that requires a security deposit. If you can’t make payments, the card issuer can use your deposit to cover any outstanding balance. This allows issuers to work with people without a substantial credit history. Most of the time, the security deposit equals the credit limit.

Secured credit cards help people who might not qualify for unsecured credit cards build their credit and demonstrate responsible credit card usage. They can also offer many of the same benefits as unsecured credit cards.

How secured credit cards work

Secured credit cards can help people with limited credit history build their credit.

After applying for a secured credit card, you’ll be asked to put down a deposit. The card’s credit limit equals your deposit or higher, depending on the specific product.

This deposit is the main difference between secured and unsecured credit cards. You can use your secured card like other credit cards to make purchases.

The Citi^® Secured Mastercard^® requires a security deposit between $200 and $2,500, which determines your credit limit. This gives you control over how much credit you’d like to access based on what you can afford to set aside. You’ll also have access to helpful tools, such as automatic account alerts and flexible payment due dates.

How secured credit cards help build credit

There are several ways a secured credit card can help contribute to building your creditworthiness.

The right secured credit card will report your on-time payments to the credit bureaus, helping to build your credit history. Keeping your account open over time can also help increase your average account age. If it’s your only credit card, it may also add diversity to your credit mix.

Be sure to choose a secured credit card that reports to all 3 major credit bureaus. The Citi^® Secured Mastercard^® reports your payment activity monthly, helping you demonstrate responsible credit habits. If available, take advantage of credit monitoring tools — the Citi^® Secured Mastercard^® offers free FICO^® score access online to help you track your progress.

Secured vs. unsecured credit cards

The key difference between secured and unsecured credit cards is the security deposit.

Secured credit cards require a security deposit, typically equal to the card’s credit limit. This deposit acts as collateral, making it easier for those with limited or less established credit histories to qualify.

In contrast, unsecured credit cards require no security deposit. Instead, lenders determine your credit limit based on factors like creditworthiness, income and debt-to-income ratio. These cards are more likely to offer rewards programs that let cardmembers earn points, miles or cash back, making them a preferred choice for those with established credit.

While unsecured cards typically provide more benefits and rewards, secured credit cards like the Citi^® Secured Mastercard^® are designed to help build or rebuild credit.

Tips for using a secured credit card to help build credit

If your goal is to rebuild or improve your credit, here’s how you can use a secured credit card to your advantage:

• Use your card regularly without approaching your credit limit: Keeping the amount of credit you use below 30% can help boost your creditworthiness. Maxing out a card — even temporarily — may result in a decrease to your credit standing.
• Pay your full statement balance by the due date every month: This can help you avoid accruing too much debt and paying interest on purchases. The Citi^® Secured Mastercard^® offers flexible payment due dates at the beginning, middle or end of the month, making it easier to align payments with your cash flow.
• Track your credit score: Once your credit score is in a strong range, it may be time to reach out to your card issuer about upgrading to an unsecured card, which will typically also let you get your security deposit back. With the Citi^® Secured Mastercard^®, you’ll have free access to your FICO^® score online once available, making it simple to monitor your progress.

Pros of secured credit cards

Secured credit cards allow you to enjoy many of the same benefits offered by unsecured credit cards while building your credit.

It’s easier to get approved

A benefit of secured cards is the easier application criteria. While it’s still possible to be declined for a secured credit card, they’re designed for people just beginning their credit journey. The Citi^® Secured Mastercard^® is specifically created for people who are new to credit or want to build their credit, and you can get a response in under a minute when you apply online.

You can begin building credit

Using a secured credit card for purchases you already routinely make and paying the statement balance on time each month is a simple way to start building your credit. The Citi^® Secured Mastercard^® reports to all 3 major credit bureaus monthly, giving you multiple opportunities throughout the year to demonstrate responsible credit habits.

You can access many of the same benefits as unsecured credit cards

Many credit cards often come with a variety of benefits and protections. While secured credit cards typically don’t offer rewards, they can still offer valuable benefits like $0 liability on unauthorized purchases, credit monitoring and the ability to add your card to a digital wallet.

The Citi^® Secured Mastercard^® provides these protections, along with additional features such as statement credits with Merchant Offers, automatic account alerts, contactless pay and Mastercard^® ID Theft Protection^™. You can also choose from flexible payment due dates to better align with your budget.

Cons of secured credit cards

Like any financial product, there are some potential drawbacks when choosing a secured credit card.

Security deposit

While you have your secured credit card, you can’t access the money you used for your security deposit. The deposit is refundable, though — if you upgrade to an unsecured card or close the account, you’ll get your money back.

Secured cards may have lower credit limits

Secured credit cards may offer lower credit limits than many unsecured cards. Since a secured credit card typically requires you to make a security deposit equal to the credit limit, the credit limit can’t exceed the amount you can afford to set aside. With Citi^® Secured Mastercard^®, you can choose a deposit between $200 and $2,500, giving you flexibility based on your budget.

How to apply for Citi’s secured credit card

You can apply for the Citi^® Secured Mastercard^® easily online or at Citi branches. You’ll need to provide some personal identifying information to apply, including your name, address and SSN or ITIN.

To qualify for the card, you’ll need to meet Citi’s qualification criteria, which will include a review of your income and outstanding debt, among other things. When you apply online, you can get a response in under a minute.

Take the next step toward building your credit

Building credit takes time and responsible financial habits, but a secured credit card can help you get started. The Citi^® Secured Mastercard^® offers an accessible way to begin establishing your credit history with no annual fee, protection against unauthorized charges and helpful tools to keep you on track.

Whether you’re new to credit or working to strengthen your financial foundation, the Citi^® Secured Mastercard^® provides the support and features you need to move forward with confidence.

Ready to start building your credit? Apply for the Citi^® Secured Mastercard^® today and get on track with your financial goals.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.