What is a secured credit card and how can it be used to improve your credit score?
Discover secured credit cards, understand how they work and learn how you can use them to improve your credit score.
Updated 
9 min. read
Secured credit cards are a different type of credit card designed to help you establish credit and can be used to improve your credit score. footnote 1 It’s a good choice if you have limited credit, or if you’re just starting out on your financial journey. That’s why it’s generally easier to acquire one without a high credit score.
These cards work just like standard credit cards, but with one difference: they require a one-time security deposit.
How do secured credit cards work?
A secured credit card requires a security deposit equal to the card’s credit limit. This ensures that the money being spent can always be paid back to the card issuer regardless of unforeseen circumstances. You only need to make the deposit once.
This deposit acts as a good-faith gesture that shows the card issuer your commitment to repaying your credit balance. It’s also how secured credit cards get their name: the funds are secured in a deposit account while the credit card account stays open. It’s similar to putting down a security deposit when renting special equipment or a new apartment. The deposit (and the credit limit it represents) starts at $300 with BMO.
Putting the deposit in place lets you use the card just like a regular credit card, giving you the freedom to purchase everyday things. Buy whatever you want: groceries, plane tickets, yoga lessons—it works for all types of purchases.
Secured credit cards may come with an annual fee, depending on who issues the card. For example, the BMO Boost Secured Credit Card comes with an annual fee of $25.
What are the differences between secured, unsecured, and prepaid credit cards?
Several types of cards are available, including secured credit cards, unsecured credit cards, and prepaid cards. They all come with different advantages and work a little differently, depending on the situation. Compare them below to see if a secured credit card is the best option for you.
| Secured credit card | Unsecured credit card | Prepaid card | |
|---|---|---|---|
| Can build credit | Yes | Yes | No |
| Charges interest | Yes | Yes | No |
| Rewards | Uncommon | Usually | No |
| Approval process | Requires approval and deposit | Requires approval | Doesn't require approval |
| Typical credit limit | Your pledged deposit amount (min. $300 with BMO) | Typically $2,000 or $2,500 (depending on the issuer) | The pre-loaded amount |
| Core requirements | Make minimum monthly payments | Make minimum monthly payments | None |
Secured credit cards
Secured cards aren’t as common as unsecured cards, but they serve an important purpose: to help you build or improve your credit. Using a secured credit card requires an up-front security deposit equal to that card’s credit limit. This can be used just like an unsecured credit card.
Secured cards don’t always come with additional benefits, such as rewards points. Otherwise they function similarly to unsecured credit cards: you can make everyday purchases, and unpaid balances incur interest.
Unsecured credit cards
This is the most common type of credit card. It lets you spend money today and repay the funds in minimum monthly payments, charging interest each billing cycle on unpaid balances. Unsecured cards also offer additional benefits, like rewards points or cash back.
This type of card might be unavailable to individuals with a limited or unestablished credit score. Most unsecured credit cards typically come with a baseline credit limit around $2,000 to $2,500 for new cards, although this can vary widely between cardholders.
Prepaid cards
These function like gift cards, since you can preload funds onto the card and make purchases immediately. They are often given as gifts or used as low-risk payment methods while traveling abroad.
Having the funds loaded in advance also means that prepaid cards don’t require credit limits or monthly payments, and they don’t incur interest charges. There’s nothing to pay back since the money has been loaded onto the card in advance of making purchases.
Prepaid cards don’t usually require an account, either. This makes them the most accessible type of card, but it also means that they do not carry additional benefits, like rewards programs.
What are the benefits of a secured credit card?
A secured credit card is an excellent choice for someone who doesn’t yet have established credit, or someone who wants to rebuild their credit score.
This could include:
- A new permanent resident in the country
- Someone opening their first bank account, like a student
- Someone establishing credit independently of family
- Your credit can improve with regular use and on-time payments, which helps you make financial progress footnote 1
- The security deposit empowers you to buy what you need, even with limited credit
- Improving your credit can let you qualify for an unsecured credit card in the future, which may come with a rewards program
- You can get your security deposit back if you decide to close the credit card account and its balance is paid off
How to apply for a secured credit card
- Fill out your information (bring two pieces of identification)
- Open a BMO Secured Savings Account and make your security deposit (minimum $300)
- Open the credit card account, pending approval from BMO. A credit inquiry will be required
- If your application is approved, then simply wait for your card in the mail
- A BMO Secured Savings Account for your security deposit
- A valid form of government-issued photo ID
- A second form of identification with your name and an expiration date (such as a debit card, a passport or another credit card)
- Your Social Security number or individual taxpayer identification number (I T I N)
Tips to improve your credit with a secured credit card
- Make on-time payments regularly to show you are a reliable borrower
- Enable AutoPay to make payments without manually checking your balance
- Maintain a low balance on your card to demonstrate proactive credit management
- Use less than your total available credit to show you can manage credit effectively
- Avoid applying for other credit cards or lines of credit to demonstrate restraint when borrowing credit
- Late payments
- Making payments less than the monthly minimum
- Maxing out your credit card limit
- Maintaining a high balance on your card
- Applying for more credit cards, loans or lines of credit
Actions that can improve credit history
Make on-time payments- Limit credit inquiries
- Keep a low credit card balance
How to move from a secured credit card to an unsecured credit card
Since secured cards exist to establish and help improve your credit score with responsible use, it makes sense to switch to an unsecured credit card down the road. Unsecured credit cards tend to come with lower interest rates as well as additional benefits, such as cash back or rewards programs. With BMO you can benefit from BMO Flex Rewards.
It’s worth thinking about switching to an unsecured card after your credit score has seen significant improvement. Depending on your credit history and your card usage, this could take 6 to 18 months to start seeing results.
You may wish to close your secured credit card account as you switch to an unsecured card. Closing it may temporarily affect your credit score.
Frequently asked questions about secured credit cards
They can. Secured credit cards are designed to help you build your credit score over time as you establish a pattern of responsible use. Consistently making on-time payments over a period of months or years is a key signal for responsible credit use, and that’s what can help you improve your credit score.
Remember that applying for a secured credit card usually requires a hard credit inquiry, which may cause a temporary dip in your credit score. This is the norm when applying for most credit cards.
Yes. You can get your security deposit back when your balance is paid off and you wish to close the account.
Eventually, yes. Unsecured credit cards often require a minimum credit score, though. Using a secured credit card along with practicing responsible use of credit may help build your credit score to the point where you can apply for an unsecured (traditional) credit card.
Secured and unsecured credit cards serve different purposes. Secured cards help to establish or improve your credit, while unsecured cards focus on offering rewards benefits to those with a high enough credit score.
Yes. Secured cards are still credit cards, and they work the same way. The only difference is that secured cards require a one-time security deposit.
They often do. Applying for any credit-related financial product usually requires a credit inquiry, and secured credit cards are not an exception. Remember that a “hard” credit inquiry may affect your credit score temporarily, but a “soft” inquiry won’t.
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Footnote 1 details Impact on your credit may vary. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.