How a secured card deposit relates to your credit line

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In a Nutshell

With secured cards, you make a deposit in exchange for a line of credit. Here’s how it works and how a secured card can help you build or rebuild credit over time.

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Before we talk about what a secured card deposit is, let’s go over some basic info about secured cards.

Think of a secured credit card as a sort of learner’s permit. It’s designed to help you build or rebuild credit with responsible use. This can be especially helpful if you’re just starting out on your credit journey or if you’ve encountered some rough patches along the way.

The idea is that you can use a secured card to get your credit on the right track, so that one day you’ll be able to advance to the next level — an unsecured card. You don’t need a great credit history to apply for a secured card, but you do need something else: a deposit.

What is a secured card deposit?

“A secured card deposit is money you put down when you open a secured card,” explains Brandon Yahn, founder of Student Loans Guy (and former Credit Karma employee). In a sense, he says, secured cards are similar to debit cards in that you need to have cash in your account in order to make a transaction.

That may be a helpful comparison, but it’s important to remember that payments on your secured card aren’t automatically deducted from your deposit amount. You’ll need to make your minimum payment by the monthly due date if you want to build a healthy credit history. We’ll address this more in a bit.

Why do I need to put down a secured card deposit?

Matthew Coan, owner of the personal finance website, says that banks and credit card issuers require deposits on secured cards because they’re wary of taking on potentially risky customers.

“Your security deposit is there in case you fail to pay off what you’ve charged on the card,” he explains. “The credit card companies will use that to pay off whatever balance you have.”

What does a secured card deposit mean for my credit line?

In most cases, whatever cash deposit you put down becomes your credit line. So if you put down a deposit of $1,000 for the OpenSky® Secured Credit Visa® Card , your starting credit line on that card will be $1,000.

Yahn adds that, in some rare cases, a bank or credit card issuer may offer access to a credit line that’s slightly higher than the amount of your deposit. With the Capital One® Secured Mastercard® , for example, you may get bumped up to a higher credit line after making your first five monthly payments on time, with no additional deposit needed.

What’s the minimum amount required for a secured card deposit?

Many cards require a deposit of at least $200 to get started, though the exact terms and conditions may vary.

If you want a much higher credit line than that, be aware that most cards have a maximum you can deposit. This varies depending on the card. For example, the Capital One® Secured Mastercard® lets you deposit up to $1,000. The max amount you can deposit may be determined by factors such as your income and creditworthiness.

What happens after I make my deposit?

After you make a deposit, you can start making purchases with your credit card. As with a traditional credit card, you’ll receive monthly statements showing the balance due. To avoid paying interest on your balance, you’ll need to pay off your balance in full and on time each month.

This is where secured cards can present as much of a risk as unsecured cards. You can still accumulate debt if you make purchases and fail to pay your bills on time. The amount you owe can quickly grow beyond the deposit you made, thanks to interest.

So yes, there are risks involved. But if you consistently make on-time payments, don’t carry a balance and don’t accrue interest, a secured credit card can be a great way to build credit.

Will I get my secured card deposit back?

You’ll want to double-check the terms and conditions, but in most cases the answer is yes. Coan explains that you’ll typically get your deposit refunded once you’re ready to close your secured card account and you’ve paid off all your balances.

Bottom line

To recap: Your secured card deposit relates to your credit line in that it usually establishes the limit on your card. In most cases, you can’t charge more than the deposit you put down on the card.

This may sound restrictive, but try to look at the bright side. A secured card can help you manage your spending and keep you honest, since your credit limit is tied to the actual money in your account.

A good rule of thumb, here and always, is to use your card responsibly.