What is a secured credit card and how does it help build credit score? MintGenie explains

livemint.com:

A secured credit card is a variant of credit card that is backed by a monetary deposit given by the cardholder to a card issuing bank. And this deposit works as a collateral for the lender. Secured credit card is generally given to the customers who have a limited or poor credit score.

Credit card issuers send the account history to credit score companies, thus impacting the customer’s credit score over a period of time.  Therefore, when someone with a poor credit score wants to improve their score, it is recommended to use these cards over a period of time i.e., several months or a year. 

When a cardholder happens to clear their dues on time, the card issuer may decide to raise the credit limit or even upgrade to an unsecured card. However, when the borrower happens to miss the due dates for payments, the credit score may suffer significantly. 

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In case the borrower is regular in clearing its payments, s/he can close a secured credit card any time s/he chooses to. In such a scenario, the cardholder stands to receive the deposit back.

However, this is seen as an expensive way to maintain a credit card since most other cards don’t need any security to back up with.

I. Backed by deposit: Unless a normal credit card, secured credit card is supported by a deposit that works as the card’s credit limit.  

II. Collateral: The deposit can be used as collateral when the cardholder doesn’t make card payment on time.

III. Expensive method: Since these cards require a deposit to go with them, this is an expensive way to maintain a card. 

IV. To improve the credit score: These cards are usually meant for subprime customers who have a poor credit score.