How a secured card deposit relates to your credit line

Young man sitting at his desk, working on a laptopImage: Young man sitting at his desk, working on a laptop

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.
Editorial Note: Intuit Credit Karma receives compensation from third-party advertisers, but that doesn’t affect our editors’ opinions. Our third-party advertisers don’t review, approve or endorse our editorial content. Information about financial products not offered on Credit Karma is collected independently. Our content is accurate to the best of our knowledge when posted.

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 careful 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. In a sense, 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 keep in mind 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?

Banks and credit card issuers require deposits on secured cards because they’re wary of taking on potentially risky customers.

A security deposit is there in case you don’t pay off what you’ve charged on the card. Your card issuer 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, your starting credit line on that card will be $1,000.

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.

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. 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. 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.

About the author: Kali Hawlk is a writer who’s passionate about using her skills and knowledge to help others. She shares ideas and stories on business, finance, entrepreneurship, and living mindfully and with intention. She’s been fea… Read more.