What is a secured credit card?

Read Time: 4 Min

A secured credit card can help establish or rebuild credit. If you have low or no credit, learn how a secured card works and if one could be right for you.

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Key Takeaways:

  • Secured credit cards require a one-time, refundable security deposit used as collateral. Your deposit is often equal to the credit limit.
  • If you don’t have credit or have poor credit, secured credit cards can help you improve your credit score when used correctly, and help you build responsible credit habits.

Credit history is key in helping you achieve your financial goals. Your credit score can determine what kind of mortgage, student loan, auto loan, or credit card you can receive, and is sometimes used by landlords, insurance companies, or potential employers as a quick measurement of your reliability or trustworthiness.

Knowing credit history touches so many facets of our lives, it can be stressful to know how to maintain healthy credit, especially if you have poor credit or no credit. You need a line of credit to prove your creditworthiness, but what do you do if you aren’t eligible for a traditional credit card?

That’s where secured credit cards can help. A secured credit card is a type of credit card that requires a one-time, refundable security deposit from the cardholder. The deposit is used as collateral, which assures the credit card issuer that you can pay your bill when it’s due. The activity on your secured credit card is also reported to the three main credit bureaus (Experian, Equifax, and TransUnion). That way, when you practice credit-building habits, you may help strengthen your credit score over time.

How does a secured credit card work?

Like a debit or credit card, a secured credit card can be used to make everyday purchases almost anywhere—in person or online. One of the things that makes a secured credit card unique is the deposit needed to secure the account.

Many secured credit cards include:

  • A One-Time, Refundable Deposit: Secured credit cards usually have more lenient qualifications because the deposit is used as collateral. If you miss a few payments or default on your debt, the credit card issuer may keep your deposit to cover those payments. But, if you make regular, on-time payments and pay your secured credit card balance in full, your deposit should be refunded if you choose to close the account.
  • A Lower Credit Limit: A credit limit is the maximum amount of money a credit card issuer is willing to lend on your credit card. With a secured credit card, the credit limit is usually equal to your one-time deposit. That means the credit limits of secured credit cards are often lower than traditional credit cards. For example, with Huntington’s secured credit card, our credit limit ranges from $250–$2,500.
  • A Monthly Billing Cycle: Each month, you’re required to make a payment towards your secured credit card balance. Make the minimum payment, which is the lowest amount you can pay each month to remain in good standing with your credit card issuer, pay back part of the purchases you made in a month, or pay back all of the purchases you made.
  • Annual Percentage Rate (APR): In short, APR determines the cost of credit for a year and is the interest rate you pay on credit cards, auto loans, and other loan products. If you don’t pay the entire balance indicated on your monthly statement, you will be charged interest on the remaining balance. Be mindful that secured credit cards usually have higher interest rates compared to unsecured credit cards to encourage cardholders to pay their monthly balances and avoid an interest charge.

Secured vs. unsecured credit cards: What’s the difference?

Both secured and unsecured credit cards function in the same way—receive a set credit limit, use your card to complete purchases, and make payments on the card each month. Both have interest rates, so if you carry a balance on your card month to month, you’ll be charged interest, increasing the amount of money you owe to your credit card issuer.

Unsecured credit cards don’t require a deposit to open an account, meaning the credit card issuer is assuming a higher level of risk and often won’t be reimbursed for missed payments. For this reason, unsecured credit cards are harder to qualify for. Unsecured credit cards also tend to come with more attractive benefits, like rewards, cash back, lower fees, and lower interest rates.

At Huntington, we offer three unsecured credit cards. Choose from earning cashback, rewards in the category of your choice, or a lower interest rate.

Secured Credit Cards Unsecured Credit Cards
Credit Limit Credit limited to refundable security deposit used as collateral Higher credit limit that is set by the borrower or lender
Approval Qualifications Easier to qualify for with a low credit score or no credit. Requires one-time deposit upfront. Must be 18 years or older. Considers things like your credit history, credit score, and income. Likely requires a credit score of 670 or higher depending on the card. Must be 18 years or older.
Can Help Establish or Build Credit Yes, when used properly Yes, when used properly
Interest Rates Typically, higher interest rates Typically, lower interest rates

Apply for a Huntington Credit Card Online

Find the credit card benefits that work for your lifestyle. From establishing credit or saving money with lower rates, to earning 1.5% unlimited cashback or 3x rewards in a category of choice, we have the card that’s right for you.

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Benefits of a secured credit card

Secured credit cards can be great tools to help establish or rebuild your credit if you don’t qualify for unsecured credit cards.

Here are a few benefits of secured credit cards:

  • It’s okay if you don’t have the best credit score. Unsecured credit cards often have rigorous requirements to qualify—including a positive credit history. Even if you aren’t happy with your credit score, you might be able to open a secured credit card because a deposit is used as collateral.
  • Secured credit cards can help improve credit. With secured credit cards, your account information is typically shared with the three main credit bureaus. If you consistently use your secured credit card responsibly, your credit score could improve over time.
  • Secured credit cards can help you receive an unsecured credit card. Once you’ve demonstrated your creditworthiness to your credit card issuer and credit bureaus, you may be able to transition to an unsecured credit card. Depending on your credit card issuer, you could automatically transition to an unsecured credit card after a certain period of time.
  • The security deposit is often refundable. Paying a large deposit upfront may not seem like a benefit, but once you close your account or graduate to an unsecured credit card, your deposit is usually refunded to you as soon as possible, as long as you paid your balance in full and on time each month.
  • You can enjoy credit card benefits. Depending on the card you choose, some secured credit cards come with added benefits, like rewards, cash back, or lower fees.

How to apply for a secured credit card

To open a secured credit card, you must be at least 18 years old. You can typically apply in the same way you would a traditional unsecured credit card—by completing an application online or in person.

Once you submit your application, the credit card issuer will examine your credit score and credit history. That will help determine the deposit needed to open your account. Shortly after you’re approved and pay the deposit, you should receive your secured credit card in the mail.

Help build credit and earn cash back with our secured card

Whether you're starting out or building credit back, Huntington offers a secured credit card that can help you improve your credit. There are no monthly fees, earn 1% cash back on all purchases, and receive Late Fee Grace® in case you miss a payment. Plus, you could automatically graduate to our Cashback Credit Card as early as seven months after opening the secured credit card. Apply for a Huntington secured credit card online or visit a branch for more information.

Tips for using a secured credit card

Whether it’s a secured or unsecured credit card, most of the same rules apply when it comes to using a credit card responsibly:

  • Pay your balance on time. On-time payments are one of the most important factors when calculating your credit score. Paying your bill before it’s due could help improve your credit score. Set a recurring reminder or enable autopay to ensure you make your payments on time. Huntington offers Bill Pay to automatically send your payments when they’re due.
  • Pay your balance in full each month. If possible, pay your whole credit card balance rather than the minimum payment due. By paying your full credit card balance each month, you’ll avoid paying interest on top of what you already owe.
  • Keep credit utilization low. Credit utilization looks at the amount of credit you owe compared to the amount of credit you have available. Try using 30% of your credit limit or less to help demonstrate responsible credit use. Also note that using below 30% of your credit limit is a general guideline, so understand that using even less is better for your score.
  • Make small purchases each month. Secured credit card limits are usually lower than unsecured credit card limits because they’re based on your initial deposit. That means it could be easier to cross the 30% credit utilization threshold than you think. Monitor your spending and limit your secured credit card use for smaller purchases like coffee or gas.
  • Keep an eye on your credit score. A secured credit card could help improve your credit score but could also hurt your credit if you miss payments or exceed your credit limit. Check your credit score regularly to understand how your secured credit card activity may be affecting your credit. With Huntington’s secured credit card, you can check your FICO score every month, free of charge.
  • Find a credit card issuer that reports secured credit card activity. Some credit card issuers may not report secured credit card accounts to credit bureaus, which means that activity wouldn’t be factored into your credit score. Before opening a secured credit card, be sure to ask the credit card issuer if they report to credit bureaus. At Huntington, we report payment history, credit utilization, card open date, and other information to the three main credit bureaus.

If you don’t have experience establishing credit or you’re looking for an opportunity to rebuild your credit, a secured credit card may be the right option for you. Apply for a Huntington secured credit card online or visit a Huntington branch today.

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