Semi-Secured Credit Card

A semi-secured, or partially secured, credit card requires the account holder to first back the card with a deposit before the bank issues credit. But in contrast to secured credit cards, the credit limit granted may exceed the required deposit. So the deposit helps to limit the bank’s risk of an account write-off, but doesn't eliminate it altogether.

This type of card sometimes helps individuals with higher credit risk, or people trying to rebuild their credit history.

People with little or no credit history sometimes struggle to get loans. So do those who have defaulted on loans or gone through bankruptcy. A secured card, which functions like a regular credit card but is limited by the amount of the cardholder’s deposit, is a first step for individuals who cannot access any credit at all.

The next step is a semi-secured card. It typically extends a small amount of credit to those who secure a credit card with a deposit that covers part of the credit limit. If holders of these semi-secured cards pay the account minimums on time on a regular basis, it may help them get a regular (non-secured) credit card in the future.

Banks usually extend credit to a range of people, and those with the best credit pay the lowest rates. Banks won’t offer credit to those with very poor credit scores. However, bank managers recognize that many higher-risk individuals don’t always stay high risk. Some will become valuable bank customers over time.

In the interim, banks tend to offer higher interest rates on semi-secured cards, to compensate for the default risk they take on. Also, some semi-secured cards have strict requirements, as well as an annual fee in addition to the deposit. Usually, a semi-secured card is a transition stage from a secured card, although occasionally a card will be offered as partially secured right from the start.

Say a person who used to own their own retail store now works a job at a small retailer and is back to paying bills on time. This person applies for a secured card, seeing it as bridge to getting a regular credit card over time, and an easier way to pay for expenses while traveling to visit family, as well as buying household items online. This person saves up $300 and uses that for the required deposit. The bank extends $300 of credit on this card, with an interest rate of 22%. Over time, the bank tracks the individual’s credit report and account history. As this person continues to pay the card’s balance on time, the bank raises the credit limit to $700, without requiring any additional deposit. Eventually, the bank may decide to offer the account holder a regular credit card with a fairly small limit, and with a lower interest rate of 14%. At that point, it will refund the initial deposit.