Do I Get My Deposit Back From a Secured Credit Card?

Whether you have bad credit or you’ve never applied for a credit card or loan, a secured credit card may be the best option for you. As you probably know, to get a secured credit card, you must place a security deposit with the card issuer and the security deposit determines your credit limit. So, will you get your security deposit back from your secured credit card? We will answer this question in much detail below.

Do I Get My Deposit Back From a Secured Credit Card?

If you make all of your payments on time, you will get your security deposit back from a secured credit card. Typically, card issuers will return your security deposit if you use your credit card and make all of your payments on time within 12 to 18 months of opening your secured credit card.

Many people mistakenly believe that a secured credit card is not a real credit card, but the truth is that a secured credit card will help or hurt your credit as does a regular unsecured credit card. Your payment history and account status is reported to the credit reporting bureaus.

So, if you make all of your payments on time, you will be helping your credit score by doing so. In the event that you can cancel your secured credit card, your security deposit will be returned to you so long as the balance on the credit card has been paid.

The security deposit is just that, a deposit that’s help by the card issuer as collateral that will be taken by the card issuer only in the event that you stop making timely payments on your credit card. So long as you use your secured credit card and make timely payments, your security deposit will eventually be returned to you.

Typically, your security deposit will be returned to you within 12 to 18 months of making timely payments on your credit card. Most card issuers will convert your secured credit card into a regular unsecured credit card once you’ve established that you’re using your credit card and paying it off in full and on time.

Two great secured credit cards that we have personally used are Bank of America’s Secured Visa Credit Card and Discover’s Secured Credit Card. Bank of America returned our security deposit within 12 months of having the secured credit card open, while Discover returned our security deposit within 8 months of having the secured credit card open.

When Do You Get Your Deposit Back From a Secured Credit Card?

Typically, card issuers will review your account within 12 to 18 months of opening your secured credit card. If you’ve used your secured card responsibly and made all of your payments on time, your card issuer may decide to return your deposit and convert your account into a regular unsecured credit card. Bank of America performs this review after 12 months of opening your account, while Discover claims to review accounts within 8 months of opening them. Both card issuers have unsecured credit card options that your secured account can be converted to.

Your Security Deposit Determines Your Credit Limit

With a secured credit card, your security deposit determines your credit limit. For example, if you place a $500 security deposit, your credit limit will be set to $500. If you want a higher credit limit, you can increase your security deposit. For example, if you want a $2000 credit limit, you can get it by placing a $2000 security deposit with your card issuer. If you need a higher credit limit, you should make a larger security deposit, as long as you make your credit card payments on time, your security deposit will be returned to you within 12 to 18 months.

For example, the Bank of America Secured Credit Card requires a minimum security deposit of $300 and permits a maximum security deposit of $4,900. Your security deposit will determine your credit limit. So, make the security deposit that’s right for you, and that will be your credit limit for the time being. If you want another option, you should check out the Discover It Secured Credit Card. This secured credit card permits you to make to place a minimum security deposit of $200 and a maximum security deposit of $2,500. Again, like the Bank of America Secured Credit Card, your security deposit will determine your credit limit.

Why Should You Get a Secured Credit Card?

You should get a secured credit card because if it’s used properly, it will have a good impact on your credit score just as a regular unsecured credit card would. Secured credit cards are accepted everywhere regular credit cards are accepted. If you open a secured credit card and make all of your payments on time, you will improve your credit score, especially if you’re just starting off with building your credit or you’re trying to repair it.

This is so because your payment history accounts for 35% of your credit score. Your secured credit card account status is updated with the credit reporting bureaus, so if you’re making your payments on time, your on-time payments will improve your credit score.

In addition to making timely payments, you should try to keep the account balance on your secured credit card low. This is so because your credit utilization accounts for 30% of your credit score. The lower the balance on your secured credit card, the better it will be for your credit score.

As a rule of thumb, you should strive to keep your credit utilization below 30%. If your credit utilization exceeds 30%, you will hurt your credit score. For the best impact on your credit score, you should keep your credit utilization below 10%, but never exceed 30%.

How Does a Security Deposit on a Secured Credit Card Work?

If you’ve never applied for a credit card or have a bad credit history, your only option to have a credit card may be to apply for a secured credit card. If you’re approved, you will have to pay what is known as a security deposit and the security deposit will determine your credit limit. The security deposit is usually refunded within 12 months so long as you make all of your payments on time and use your credit card responsibly. However, if you default on your credit card, you will not get your security deposit back. Instead, the security deposit will be used to repay the amount of money that you owe on the credit card.

Typically, you will pay the deposit when you apply for the secured credit card. Most banks will ask for the source of funds, such as a checking account or savings account, and you will enter this information when applying for the credit card. If you’re approved, your credit card will be issued and the funds will be debited from the account you provided in your credit card application.

Usually, you will be able to select the credit limit that you want, for example, the Bank of America Secured Credit Card permits you to make a minimum deposit of $300 or a maximum deposit of $4,900. Your security deposit usually determines your credit limit. If you make your payments on time consistently, the bank may raise your credit or convert your secured credit card into a regular unsecured credit card. That said, not all banks have an unsecured credit card that they can offer to you, so check with your card issuer before applying.

Getting a Regular Unsecured Credit Card

If you have good credit, you will not need to go through the hassle of applying for a secured credit card. To get a regular unsecured credit card, you must have good credit. This is so because lenders are only willing to take a risk on people with good credit because those with good credit are likely to repay the money they use on their credit cards. Credit card issuers are not willing to take a risk on those with low credit scores because they have do not have a good history of borrowing and repaying money on time.

If you don’t have credit or have a bad credit, the best place to start is a secured credit card. Secured credit cards give you a chance to prove that you are able to borrow money and repay on time. To improve or build your credit, you should use your secured card responsibly by only using it to make purchases that you can afford to pay off at the end of each month. This will help you establish a good payment history, which is the biggest factor that affects your credit score. Also, keep your credit balance low because your credit utilization is the second most important factor affecting your credit score.

Bottom Line

Although it may seem expensive to play a security deposit to open a secured credit card, if you’re just starting to build your credit or you have bad credit, having a secured credit card that you use responsibly and always pay on time can do wonders for your credit score. So, although it may be painful to put down the cash for a credit card, you should do so to improve your credit. Also, don’t forget that if you use your card and make all of your payments on time, your security deposit will be refunded to you within a short period of time.

Credit Score Planet Frequently Asked Questions

1. How do you get your money back from a secured credit card?

You can get your money back in one of two ways. If you decide to close down your secured credit card and you’ve paid off the balance on your account, your security deposit will usually be sent back to you. Also, if you’ve had your secured credit card for approximately 12 months, your account may be converted to a regular unsecured credit card at which point your security deposit will be mailed to you in the form of a check.

2. How long does it take to get a secured credit card deposit back?

Usually, it takes approximately 12 to 18 months to get your security deposit back. Some credit card issuers will refund your deposit in as little as 8 months.

3. How much should I deposit on a secured credit card?

With most secured credit cards, your security deposit is your credit limit. So, make a deposit that’s equivalent to the credit limit that you need. For example, if you want a $2,000 credit limit, you should make a $2,000 security deposit

4. Will I get my security deposit back from a Bank of American Secured credit card?

Yes, if you make all your payments on time and pay off your Bank of America secured credit card, your security deposit will be refunded to you. Also, if you BOA secured credit card is converted into a regular credit card, your security deposit will be refunded to you.