What determines the credit limit on a secured credit card?

The amount of money deposited as collateral is the key factor that determines the credit limit on a secured credit card. A secured credit card requires the cardholder to make a cash deposit with the issuer, which serves as collateral in case the cardholder fails to make payments. The credit limit is typically set at or slightly below the amount of the deposit. This arrangement reduces the risk for the lender since the collateral can be used to cover any unpaid balances.

While the cardholder's income level and credit history are important in other types of credit arrangements, they have less influence in the context of secured credit cards because the card is designed primarily for individuals looking to build or rebuild their credit. Prevailing interest rates may affect the overall cost of using the card but do not directly influence the credit limit. The structure of secured credit cards centers around the collateral, making it the primary determinant of the credit limit.