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Bottom Line Up Front

  • If you have limited credit or even poor credit, a secured credit card may be the credit option for you.
  • Use your money as collateral to open a secured credit card account, and after a few months of responsible use, you can switch your secured credit card to an unsecured one. 

Time to Read

3 minutes

May 8, 2022

If you have limited experience with credit or have had bad credit in the past, you may think you’re out of luck when it comes to credit card issuers. You’re aren’t! There’s a solution: a secured credit card. How does a secured credit card work—and how can you get one? Let's find out. 

What’s a Secured Credit Card?

A secured credit card is just like a regular credit card, except that it uses your own money as collateral. You deposit a certain amount with the credit card company, known as a security deposit, and that money is returned to you when you close your credit card account or switch to a non-secured card and your balance has been paid. 

Most secured credit cards require a deposit of at least $200 to $500 from your bank account. This means, if your initial deposit is $500, your secured credit card will have a credit limit of at least $500. 

The financial institution backing your secured card account will place a hold on your refundable security deposit, meaning those funds won’t be available for spending. You’ll need to make responsible use of your secured credit card and pay your bill every month. Avoid late payments and pay by the due date. A solid payment history helps to improve your credit score, which lenders like to see.

What Are the Benefits of a Secured Credit Card?

If you have no credit or poor credit, a secured credit card enables you to soon be on your way to a good credit score. Most financial institutions report the activity on your secured credit card to the major credit bureaus. It’s this reporting that allows you to build a strong credit history. To check your credit score, you can pull your credit report and credit profile from Equifax®, Experian® and TransUnion®.1

More good news: some secured cards come with benefits, so you aren’t just establishing or rebuilding credit—you’re getting some extras. Navy Federal’s nRewards® Secured credit card offers a low interest rate and no annual fee, no balance transfer fee, no foreign transaction fees2 and rewards points3 that can be redeemed for cash back, gift cards and merchandise. And, cardholders earn interest on their initial security deposit.

How Does a Secured Credit Card Work?

Once you have a secured credit card, you can use it like any traditional credit card. Once you've established a history of good credit (which may happen in as little as 6 months of on-time payments), your card may be upgraded to an unsecured card, and your security deposit released. If you have Navy Federal's nRewards® Secured credit card, after just 3 months, you could be eligible for an upgrade that includes additional credit to allow for spending beyond your deposit.

How Does a Secured Credit Card Build Credit History?

The most important factors in building your credit score are your credit utilization and your payment history. Other factors include the length of credit history, types of credit used and new credit. By using a secured credit card on a regular basis and making your payments on time every month, you’ll establish credit history due to your payment history.

Another key factor in building credit is keeping your card balance low. Keeping your balance low will show creditors that you don’t need to rely strictly on your credit cards. A good credit score rule of thumb is to use less than 30% of your credit line each month to show you’re a responsible credit card holder.

What Should I Look for in a Secured Credit Card?

Not all secured credit cards offer the same benefits, fees and features. When looking into applying for a secured credit card, it’s important to look for a few signs in order to pick the best secured credit card for your financial situation.

  • Additional Fees: Some cards will charge annual, transaction or other additional fees. Check to see if the secured credit card charges additional fees that other secured credit cards may not have. You want to make sure that fees won’t outweigh the benefits of a secured card.
  • Credit Bureau Reporting: Not all secured credit cards report your card activity to the major credit bureaus. If you obtain a credit card like this, it won’t be helpful to building your credit. Make sure the secured credit card you apply for reports your activity to help you build your credit.
  • Rewards and Benefits: Not all secured credit cards offer the same features. Look for a card that offers features that appeal to you and your spending habits, such as the ability to earn rewards points or offering free FICO® Score access.
  • Reliable Source: Make sure you obtain a secured credit card through a reliable and reputable source with great customer service in case you ever need assistance.
  • Check With Your Credit Union: Credit unions tend to offer fewer fees and lower interest rates than banks, so check with your credit union before seeking a secured credit card through another lender. You’ll also want to ask about the process involved with eventually graduating from the secured card to a regular credit card.

How Can I Get a Secured Credit Card?

To discuss the best secured credit card for you, contact your financial institution. With Navy Federal, you’d need to open a qualifying savings account first. Then, make the deposit requirement of at least $200 into your savings account. Finally, submit your application for a secured credit card. Once approved, you’d be issued a card with a credit limit equal to your deposit. 

How Do I Move From a Secured Credit Card to a Normal Credit Card?

The main goal of using a secured credit card is to improve your credit score to a more comfortable level in order to then qualify for a normal, non-secured credit card. Once you achieve the credit score you desire and pay off the remaining balance, you can reach out to your financial institution to go over the next steps, including the chance to apply for a regular credit card.


Next Steps Next Steps

  1. For personalized financial guidance, our personal finance counselors can help with goal setting, budgeting and financial recovery.
  2. Set up automatic transfers to pay your credit card payment on or before the due date to avoid late fees.
  3. Review the wide range of credit cards Navy Federal has to suit your needs. 


1All product and company names and logos are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

2As of 03/10/2022, nRewards Secured card rate is 18.00% APR and will vary with the market based on the U.S. Prime Rate. ATM cash advance fees: None, if performed at a Navy Federal branch or ATM. Otherwise, $0.50 per domestic transaction or $1.00 per foreign transaction.

3Rewards are earned on eligible net purchases. "Net purchases" means the sum of your eligible purchase transactions minus returns and refunds. Eligible purchase transactions do not include, and rewards are not earned for, the following transactions: cash advances, convenience checks, balance transfers, gambling or fees of any kind, including finance charges, late fees, returned check fees, and ATM cash advance fees. Cash equivalent transactions, such as the purchase, loading, or reloading of gift and prepaid cards (e.g., money orders, GO Prepaid Cards and other cash equivalent gift cards), may not be eligible purchase transactions and may not earn rewards. Rewards expire 4 years after they are earned.

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.