How a secured credit card deposit works

A secured credit card works like any other credit card, with one difference: before you can use it, you give the issuer a security deposit. That deposit protects the issuer if the balance isn’t repaid, which is why secured cards are often available to people with little or no credit history.

Here’s what the deposit does, what it doesn’t do, and how to get it back.

What the deposit is (and isn’t)

The deposit is security, not a prepayment. You still receive a monthly statement and you still need to pay your balance by the due date, just like an unsecured card. The deposit stays in place in the background for as long as the account is secured.

That distinction matters for building credit. What lenders want to see on your credit report is a history of you making payments on time. If the deposit simply paid your bill, there would be no payment history to report.

How the deposit relates to your credit limit

With many secured cards, your credit limit is equal to your deposit: deposit $500 and you can spend up to $500. Some issuers set the limit differently, so check how it works before you apply.

A simple example:

Step	What happens
You deposit $500	Your credit limit is set to $500
You buy $120 of groceries over the month	Your statement shows a $120 balance
You pay $120 by the due date	No interest is charged on those purchases and your payment can be reported as on time

Many cards also have an interest-free grace period on new purchases if you pay your statement balance in full. FCAC notes that federally regulated institutions must give a grace period of at least 21 days. Other issuers aren’t bound by that minimum, so read your card’s terms.

Keep your balance low relative to your limit

A small limit fills up quickly. FCAC suggests trying to use less than 30% of your available credit. On a $500 limit, that means keeping your balance under $150, so a few recurring subscriptions can be plenty for a secured card. Our guide to credit utilization has practical ways to manage this.

Getting your deposit back

Secured card deposits are generally returned in one of two ways:

1. You close the account in good standing. The issuer applies the deposit to any balance you still owe and returns the rest.
2. You move to an unsecured card. Some issuers review your account after a period of on-time payments and may offer to return the deposit while keeping the account open.

Timing varies by issuer. Before you apply, ask how long it takes to receive your deposit after closing, and whether they review accounts for an upgrade.

If you’re thinking about closing the card, remember that older accounts help the length of your credit history. FCAC’s guide to cancelling a credit card explains what to consider.

What happens if a payment is missed

The deposit doesn’t stop a late payment from counting against you. If you miss a payment, the issuer can charge fees and interest, and the late payment may be reported to the credit bureaus. If the account is eventually closed with money still owing, the issuer can use your deposit to cover it.

If you’re worried about making a payment, contact the issuer before the due date. Paying at least the minimum protects your payment history.

Questions to ask any secured card issuer

• Does the card report to both Equifax and TransUnion? (A card that isn’t reported won’t build your credit history.)
• What is the minimum and maximum deposit, and can I add to it later to raise my limit?
• What are the annual or monthly fees and the interest rates for purchases and cash advances?
• How and where is my deposit held, and does any deposit protection apply to it?
• When and how is my deposit returned, and will you review my account for an unsecured card?
• Is there a credit check when I apply?

How we’re approaching our secured card

Evolve Capital Credit’s secured credit card is in development. We’ll answer every question above in plain language, including how deposits are held and returned, before applications open. Until then, every fee, rate and term on our site is marked “to be confirmed”.

Key takeaways

• A secured card deposit is security for the issuer, not a payment toward your bill.
• Your limit is often equal to your deposit, but not always.
• You still need to pay your balance on time, which is what builds credit history.
• The deposit is generally returned, minus any balance owed, when you close the account in good standing or move to an unsecured card.