What Is A Secured Credit Card And How Does It Work?

By Kyle Walker | April 24, 2019

A secured credit card is a card that requires you to pay a deposit up front, which serves as your credit limit. For example, paying a $500 deposit up front will give you a $500 credit limit. You're probably wondering, "How is that a 'credit' card when I have to put money up front?" To put it simply, it's about your credit.

Secured credit cards are designed for those with bad credit or no credit at all, and serve as an excellent tool for building your credit score. It's a way for credit card companies to gauge your credit worthiness by giving you the opportunity to prove yourself.

A strong payment history is crucial to having good credit. Payment history makes up 35% of your FICO score, and is the biggest component of the five total components that make up your credit score. Your FICO score is broken down like this:

Payment History - 35%
Credit Utilization - 30%
Length of Credit History - 15%
New Credit - 10%
Credit Mix - 10%

All five components can be addressed with a secured credit card, and credit card companies report your credit behavior to all three credit bureaus. Do you see now how valuable secured credit cards can be? They are the ultimate credit "hack" and will open many doors for you in the future.