Our top picks of timely offers from our partners

More details
Learn More
Terms Apply
Rate hikes mean you can earn more - earn 4% APY on up to $6,000 ($2,000 per "Savings Pod")
Learn More
Terms Apply
Compare student loan refinancing rates without impacting your credit score - it's free and easy to use
One of the longest 0% intro APR offers plus, no annual fee
Rocket Mortgage
Learn More
Terms Apply
Our top pick for those with lower credit scores - their Fresh Start program can help boost your credit
New $350 statement credit welcome offer after meeting spending requirements
Select is editorially independent. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners. Read more about Select on CNBC and on NBC News, and click here to read our full advertiser disclosure.

Everything you need to know about getting a secured credit card

Secured cards are one of the best options for credit newbies or people with less than stellar credit. Here's how secured cards work, the credit requirements to get one and how to transition to an unsecured card.

Getty Images
Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

If you're looking to build or rebuild credit, there are a number of credit cards on the market that are designed for that purpose. Secured cards are one of the best options for credit newbies or people with less than stellar credit.

You can use a secured card just like a traditional (aka unsecured) credit card to help you establish good credit, as long as you practice responsible credit behavior.

Below, Select outlines how secured credit cards work, the credit requirements to get one and how to transition to an unsecured card.

How secured cards work

A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you're required to make a deposit (known as a security deposit) in order to receive a line of credit. The amount you deposit usually becomes your credit limit.

Deposits typically start at $200 and can range to upwards of $2,500. If you make a $200 security deposit, you'll receive a $200 credit limit. If you want a bigger credit limit, you'll need to deposit more money.

The amount you deposit acts as collateral if you default on payments, but it's completely refundable in one of two ways: Pay off your balance in full and close your account, or upgrade to an unsecured card.

Secured cards offer many of the same benefits as traditional credit cards, but they are typically easier to qualify for if your credit history is poor or non-existent.

The one big difference, in addition to the required security deposit, is the interest rate. Secured cards usually offer all users one variable interest rate, say 24.99%, for example. Meanwhile, an unsecured card often features a range, say 13.99% to 24.99%. In most cases, the better your credit score the lower APR you'll receive. Since secured cards often only have one, relatively high APR, it's extremely important you always pay on time and in full to avoid interest charges.

How secured cards can improve your credit

When you responsibly use a secured card, making payments on time and in full, this information will be sent to the three main credit bureaus, Experian, Equifax and TransUnion, which helps boost your credit score and puts you on the path to qualifying for an unsecured card.

Payment history is the most important factor of your credit score, making it key to always pay on time. If you consistently make on-time payments with your secured card, positive information will be reported to the credit bureaus, which helps you build credit.

Which secured card is right for you?

There are a few things to consider when choosing a secured credit card: how much is the required deposit, how do you transition to an unsecured card (more on that below) and can you earn rewards?

One strong secured card option is the Discover it® Secured Credit Card, which requires a $200 deposit but comes with some good perks. You can earn rewards (2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, then 1%, and unlimited 1% cash back on all other purchases automatically), there's no foreign transaction fees and there's no annual fee.

If you're looking for a card that requires a smaller deposit, you might want to consider the Capital One Platinum Secured Credit Card. If you qualify for the low $49 or $99 deposits, you'll still receive a $200 credit limit.

How to transition from secured to unsecured card

While a secured card is a great way to build credit, it's not an ideal long-term option since you have to deposit money to receive a credit limit. Eventually, you'll need an unsecured card that provides a bigger credit limit without a deposit.

The transition from secured card to unsecured card varies by card issuer. Some card issuers may perform periodic account reviews to evaluate whether you can be switched to an unsecured card. For the Discover it® Secured Credit Card, starting at seven months from account opening, Discover will automatically review your credit card account to see if they can transition you to an unsecured line of credit and return your deposit.

If your card issuer doesn't offer an automatic upgrade process, you can simply call the number on the back of your card and ask to be transitioned to an unsecured card. They may transition you to a similar card that doesn't require a security deposit. Be aware that a credit check may be performed.

Some card issuers may not offer a transition process, so that means you'll have to apply for an unsecured card and close your secured card account. Experts generally don't recommend closing credit cards, but secured cards are a bit different since you're required to put up collateral.

Before you close a secured card, make sure you apply for a new card and are approved. If you close your card before opening a new one, it may be more difficult to be approved.

Never had a credit card before? Here's the best starter card for your wallet

Information about the Capital One Platinum Secured Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.

For rates and fees of the Discover it® Secured Credit Card, click here.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.