A secured credit card is a kind of credit card that requires deposits, while an unsecured credit card does not. If you use a secured credit card in a wise way, it could help you build up a good credit image and increase your credit score.
The major difference between a secured credit card and a regular credit card is the requirement of deposits.
A secured credit card always requires a one-time, refundable deposit before you are approved for the card. This deposit for secured card will cover the future purchases made with the card, which means you do not need to repay any money to the bank if you purchase commodities which costs you less than your deposit.
However, if you stop making payments on your secured credit card account, the bank will hold your money and you cannot take them out without paying any interests either.
The applicants for a secured credit card are people with little or no credit, or people who are building bad credit. In any case, they are considered risky.
Thus, the policy for secured credit card is like an insurance policy. The bank wants to make sure that the applicants will actually use this credit card and repay their bills. If you open a secured credit card, your deposit will be ranged from the minimum deposit to the amount of the credit limit, which depends on the credit card’s terms and policies.
However, not all secured card deposit cover your monthly credit card bill. That is, sometimes the deposit is refundable but could not be a part of your repayment.
In other words, you have to make your repayment on time each month, and if you don’t make the full repayment, credit card issuers would charge you some interests as penalties. Under this situation, your deposits will be refunded when you demonstrate that you are trustworthy by keeping the account in good standing or when you close your credit card account.