Building your credit using secured credit cards

What is a secured credit card?

A secured credit card in many ways works just like a standard credit card provided to you by a bank or lender with one major difference: the secured credit card is only provided in return for a monetary deposit used as collateral. For this reason a secured credit card is available to a much larger subset of the population. A secured credit card can be obtained if the applicant has a bad credit rating and also in the event that the applicant has no credit history at all. A secured credit card works as an effective way to build (or rebuild) your credit for a brighter financial future.

Credit cards are great for people with no credit score – i.e. students and young people. They are great for those with poor credit history that need to rebuild their credit score or for anybody that has filed bankruptcy. They are also a good option for recent immigrants.

What you need to know

The main benefit of using a secured credit card is that it can help you establish a stronger credit score. Nonetheless, secured credit cards still charge common fees that you would expect to have on unsecured credit cards. In fact, fees for secured credit cards are often higher. Sometimes lenders require monthly insurance fees, on top of your security deposit. There are good secured credit cards, and bad secured credit cards. The best secured credit permit you to switch to unsecured credit cards after a specified amount of time. This is the type of situation where it really pays to shop around.

Your credit limit is usually determined by your deposit. Usually your credit line will equal the amount of your deposit.

You will also be charged an APR (annual percentage rate) for balances you carry forward. You will want to ensure that your APR is low if you plan on having forward-carrying balances on your record so that your interest payments are low as well.

How much do you have to deposit?

There’s no definite answer to this question. Often, the required deposit is between $300 and $1000. A lender will usually set minimum and maximum limits for your deposit. Some lenders actually pay interest on your deposit and treat it as a savings account. Your security deposit is used in the case that you default on your payments.


Besides the required documents (social insurance number, proof of address, etc) secured credit card providers often require you have to have proof of regular income. Some age restrictions are also common. Of course, each company has its own set of requirements.

Credit bureaus

The main goal behind using a secured credit card is to build your credit score. In order to accomplish this you need to ensure that your lender reports to the major credit bureaus. Failing to do so will result in you not getting the results you need to move on with your finances. It is important to ensure that your secured credit card helps you work towards your personal financial goals.

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