Mr Credit Card
Now that we have explained the mechanics of deposits in secured credit cards and how it works, we will know look at how much your deposit should be when you get a secured credit card. Here are some rules to follow.
Recap of Typical Deposit Range
Before we go on, let us recap what the typical range for a deposit is. It ranges from $200 to $5,000. Some like Wells Fargo allow you to deposit up to $10,000. So now, let's answer the question of how much deposit you should put up.
Put enough to achieve a low credit utilization ratio
One of the majors in how credit bureaus calculate your FICO score is your credit utilization ratio. The lower the utilization, the better. For example, if you have a $1,000 credit limit and you are charging $900 a month to your credit card, then you would have a 90% credit utilization ratio. That is a very high ratio and you would probably want to lower it.
What is a good credit utilization ratio? Anywhere up to 30% would be ok. So in this example, if you charge $300 or less to the card every month, then you would have a utilization ratio of 30% or less (which is good).
Put an amount which you can afford and live without comfortably
While you should put a deposit which allows you to have a low utilization ratio, you should also consider how much can you afford to set aside for this.
One of the most important thing to have financially is an emergency fund. Ideally, one should have an emergency fund for six months of living expenses (or more). You should try to save that amount first. If you do not have enough of an emergency fund, then I would say that you should focus on that first. It is no use putting $5,000 as your deposit if you do not have an emergency fund since you cannot withdraw your deposit unless you cancel the card.
Having said that, if you really need to rebuild your credit and you have chosen a secured credit card to do so, then put down the lowest amount of deposit allowed ($200 in most cases), and just make sure you keep your utilization ratio low. If $200 is your deposit, then $60 is 30% of your limit. Make sure you do not charge more than $60 a month on the card and ideally, you would want to pay it off in full every month. You might even want to try getting a secured card from Capital One because you may not need to put up the full $200 deposit. For some applicants, you only need to put up $49 or $99 and you will still get your $200 credit limit.
Furthermore, some issuers like Capital One and Discover It have been known to increase your credit limit without requiring any further deposit.
Can I and Should I increase my deposits over time?
If do not have enough cash at the present moment to put down a deposit that you want, you could start small and increase your deposit later. However, different secured card issuers have different rules.
If you intend to increase your deposits over time, then a secured card like the Citi might not be a good choice because they do not allow you to increase your deposits. A card like US Bank might allow you to increase your deposits but only after six months.
Please make sure you find out the deposit increase policy of the issuer before you apply.
Try to figure out the maximum that you will charge on your card
While it is good to think about credit utilization ratio, you also have to consider the maximum amount you will ever charge to your card and make sure you have enough limit. For example, if you want to use your secured credit card to rent a car, then you have to make sure that you have enough limit (deposit) for that. You should be aware of how many days do you rent a car and how much it roughly cost.
Another example would be that if you decide to use to book hotel rooms. Let's say you decided to get the Best Western Secured Mastercard since you travel for business and you do stay at those hotels. To be able to use your card to pay at check outs or allow the hotel to bill your credit card, you would have to have enough credit lines. In this case, the amount of deposit will be influenced by how much you need to charge to your card. Obviously, during times where you need to rack up a large charge like this, you can throw away the 30% credit utilization rule. But that is ok once in a while since the purpose of having a larger credit line on a credit card is to be able to use it when you need it. Below are two comments from secured card holders.
The only thing I regret is that I put in only $300 as my deposit. After a few months, I realized I need to book a hotel for several nights and rent a car. My limit turned out to be too low and I called to see if I could increase my deposit. I was told that I could not so I ended up having to apply for the Discover it secured and capital one.
I put in $600 as deposit (which is a larger amount than usual) because I wanted to make sure I had enough credit line to book my hotels and rent a car and yet keep my utilization ratio within reason. So far I have had no problems booking hotels or using the card for car rentals.
Summary: How much should you deposit for your secured credit card?
To sum up, how much you put down as a deposit (and hence credit limit) for your secured credit card depends on a few things. The most important thing is to put down a deposit that you can afford and try to use just up to 30% of your limit. You should also try to put down a deposit that is large enough for your largest expense like car rentals or booking hotels. And if you cannot afford to put down a large amount, you can always start with $200 or the minimum amount and increase it after a few months.
What's Next
How to use secured credit cards wisely?
How fast can secured credit cards build credit?
How many secured credit cards do you need to build credit?
What is a secured credit card and how does it work?
Pros and Cons of Secured credit cards
How does deposits on secured credit cards work?