A secured credit card requires you to make a deposit against the card's credit limit. Your credit limit will usually be a percentage of your security deposit or it may be the same as your deposit. Many banks place your deposit into an interest-bearing savings account where it stays until you close your account, upgrade to an unsecured credit card, or default on your credit card balance.
Secured Credit Card vs. Regular Credit Card
Secured credit cards act just like regular credit cards. Purchases reduce your available credit and you're required to make monthly minimum payments on your balance. If your secured credit card has a grace period, you can avoid paying finance charges by paying your balance in full each month. Late payments and over-the-limit transactions are penalized with a fee.
Secured credit cards often have more fees than unsecured credit cards. It's common to pay an annual fee and an application fee. Some secured credit cards charge monthly account fees and credit limit increase fees.
Converting to Unsecured Credit Card
Some secured credit cards review your account after a certain amount of time, e.g. 12 months, and upgrade you to an unsecured credit card if you qualify. You can improve your chances of qualifying for an unsecured credit card by making your payments on time and keeping your credit card balance low. Even if your secured credit card issuer doesn't upgrade you to an unsecured credit card, you may qualify for an unsecured credit card with another credit card issuer after six to twelve months. That's assuming your secured credit card has reported your credit history to one of the major credit bureaus.
A secured card is a good choice if you are just starting out with credit or you need to repair a damaged credit history and you can't get approved for a regular credit card.