When Credit Card Debt Is Secured

Credit card debt is usually unsecured. But there are some exceptions.

In most instances, credit card debt is unsecured. This means that the credit card company cannot take anything from you without first getting a court judgment. However, some credit card debt is secured. (To learn about the difference between secured and unsecured debt, see What Is a Secured Debt? And What Is an Unsecured Debt?)

What's a Secured Credit Card?

With a secured credit card, you deposit money into a savings account in a credit union or bank. The credit union or bank freezes the account while you have the card, and you get a credit limit for a percentage of the amount you deposit—as low as 50% and as high as 120% (usually as a promotional incentive). You should read the cardholder agreement carefully before applying for a secured credit card to make sure that you fully understand the credit limit you’ll receive. Depending on the credit union or bank, you’ll be required to deposit as little as a few hundred dollars or as much as a few thousand.

If you fail to pay your credit card debts, the bank or credit union can use the money in your account to cover your charges.

Why Get a Secured Credit Card?

People typically get a secured credit card only if they can't qualify for an unsecured card, and as a way to start rebuilding their credit. Keep in mind that secured credit cards are usually expensive—they often come with hefty application and processing fees, annual fees, and high interest rates. And some don’t have a grace period. And before you get a secured card, ask the card issuer if it reports to the three national credit reporting agencies. Some don’t, and if that’s the case, it won’t help your credit. (Read about what's in your credit report, and your credit score and why it matters.)

Although if you really need a card— for example, to reserve hotel rooms and rent cars—then getting a secured credit card may still be worthwhile. (Get an overview of other ways to rebuild your credit.)

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