How to build credit with secured credit cards

Keep your balance low and pay on time

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A lot of financial doors open up after you get your credit score into the "good" range, including the chance to qualify for lower insurance premiums and loans with competitive rates and terms. A good credit score can also make you eligible for a wider selection of credit cards, like rewards and travel cards.

But the pursuit of a good credit score means contending with the credit paradox: In order to build decent credit, you need to use credit products. And to qualify for most of those products, you need decent credit.

Fortunately, a secured credit card can help you start building credit even if you have a low credit score or no credit history at all.

The point of getting a secured credit card is to improve your credit enough to upgrade to unsecured credit products later. If you're ready to build credit for the future but can't seem to qualify for unsecured credit, read on to learn how to use a secured credit card for your benefit.

Key insights

  • Secured credit cards require a cash deposit as collateral, with minimum deposits ranging anywhere from about $50 to $300, depending on the card.
  • Your security deposit is fully refundable when you close or upgrade your account in good standing.
  • You can take full advantage of a secured credit card’s benefits if you keep your card balance relatively low, make all your payments on time and seek out a card issuer that reports to all three major credit bureaus.

What is a secured credit card?

A secured credit card is a type of payment card that requires you to put down a cash deposit as collateral. This deposit is then used to "secure" the card’s line of credit, which you can use to make purchases.

As an example, you may be asked to put down a $200 deposit as collateral on a secured card, which then becomes your $200 credit limit. This means you can only make up to $200 in purchases with your card at any given time. However, some secured credit cards eventually let you graduate to a higher credit limit after you repeatedly make on-time payments.

While there are downsides to secured credit cards, including the need to make a security deposit, these cards are easy to get approved for even if you have bad credit or no credit. Secured cards also report your card usage to credit bureaus, which helps you build credit over time.

Below are six key strategies for getting the most out of a secured credit card and using it to rapidly improve your credit score.

1. Ensure your card reports to the bureaus

You can’t build credit with a secured credit card unless your responsible card usage is properly reported. So before you apply for a secured credit card, you'll want to make sure the card’s issuer reports to the three major credit bureaus — Equifax, Experian and TransUnion.

Fortunately, most secured card issuers clearly advertise their credit reporting practices on their cards’ pages online. However, you may have to call a card issuer or dig through its website to find this information. For example, Discover buries its credit reporting practices for the popular Discover It Secured Credit Card within its fine print: “Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly.”

2. Pick a card with low interest rates and fees

As you check to see if a secured credit card’s issuer reports to the major credit bureaus, take a moment to review other key card features as well. Karyn Rando, who serves as the director of counseling operations at Consumer Credit Counseling Service of Rochester, says this means comparing cards based on their annual percentage rate (APR) if you plan to carry a balance, as well as applicable fees like annual fees.

You can also consider secured credit cards that earn cash back or rewards points. However, take note that rewards only get you "ahead" with a secured credit card if you avoid carrying a balance and paying interest or fees altogether.

Fortunately, there are many attractive secured cards to choose from. While secured credit cards tend to have the same high interest rates as their unsecured counterparts, many of the best secured cards have no annual fee. Some also offer cash back on spending that can be used to pay down your balance via a statement credit or redeemed for gift cards and other options.

» MORE: Best Secured Credit Cards

3. Fund your deposit right away

For your secured credit card to actually work, you have to fund it with the cash that will be used as collateral. This amount typically ranges from about $50 to $300 to start, although Rando says many secured cards give you the option to deposit up to $3,000 (or more) if you want a higher initial credit limit. If you're tight on cash at the moment, this is another factor you'll want to keep in mind as you choose a secured card.

Once you choose a secured card with a collateral requirement you can afford, you typically need to make the security deposit online as part of the application process when you apply. You can do this by supplying the card issuer with your bank routing number and account number to facilitate the transfer.

If you want to begin building credit, you'll need to have this money ready in your bank account to get started with a secured card. The sooner this happens, the faster your journey to good credit begins.

4. Pay your bill on time

To make the most of a secured credit card, you should recognize the most important factor that makes up your credit score — your payment history. This factor alone makes up 35% of a FICO score and 41% of a credit score based on the VantageScore 4.0 model.

For the best results, you'll obviously want to pay your credit card bill on time each month.

5. Keep your utilization low

Credit utilization — i.e., the amount of credit you use out of your limit — makes up 30% of your FICO score and 20% of scores that use the VantageScore 4.0 model. Also, note that your balances make up another 6% of VantageScore 4.0 credit scores. According to VantageScore, carrying high balances can negatively impact your credit, even if you're never late on payments.

In addition to staying current on all your bill payments, Rando says you'll want to keep the amount you owe on your credit card below 30% of its limit. This means keeping the balance below $60 on a card with a $200 limit and below $900 on a card with a $3,000 limit.

Rando adds that using a secured card for expenses you’re able to pay off in full each month will help keep your credit card balance low. In other words, you may want to stick with using your secured credit card only for planned purchases you already have the cash for.

You can even pay off your credit card balance multiple times each month if you want to keep your utilization low or reuse your available credit throughout the month. If you put down a low deposit and have a low starting credit limit, paying off your card's balance several times each month can be especially helpful.

» MORE: What affects your credit score?

6. Upgrade to an unsecured credit card

Many secured credit card issuers allow you to monitor your credit score for free. Once your score has reached about 600 or so, it’s time to get your deposit back and move on to an unsecured credit card.

Some secured credit card issuers will even help initiate the process. For example, cardholders of the Discover It Secured Credit Card qualify for automatic account reviews after seven months of card use. A responsible cardholder will then get their security deposit back and be upgraded to an unsecured version of the card.

Ultimately, upgrading a secured card to an unsecured version of that same card may be a wiser move than canceling the secured card and applying for an unsecured card with a different issuer. It will likely be easier to upgrade with the same issuer, and it will preserve your original card account on your credit report for a longer period of time. This detail is important because the length of your credit history makes up 15% of FICO scores and 20% of scores that use the VantageScore 4.0 model.

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    How long will it take to build credit with a secured card?

    You can begin building credit with a secured card as soon as one month after the date your card issuer first reports your card use to the credit bureaus. However, you may have to wait up to six months to get certain types of credit scores to show up if you started with no score at all.

    What score do you need for a secured credit card?

    In general, you don't need a credit score to qualify for a secured credit card. You just need to be able to make the card’s minimum deposit and meet other basic qualifying criteria, like being at least 18 years old.

    How can you check your credit score?

    You can check your credit score on your credit card statement if you signed up for a card that offers this perk. Or you can check your score via a free credit score service like Credit Karma or Credit Sesame.

    Is there a hard inquiry for getting a secured credit card?

    Applying for most secured credit cards will usually result in a hard inquiry being recorded on your credit report, though there are some card issuers that will not run a hard inquiry for secured card applicants.

    Bottom line

    A secured credit card can give you a leg up if you need help building credit, and you may be able to get started with around $50 in collateral. However, the way you use your card will ultimately determine your results.

    Use credit responsibly, and you'll be rewarded. To maximize your secured card's benefits, you'll need to make on-time payments and keep your balance low like your future depends on it.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Federal Trade Commission, " Using Credit ." Accessed March 22, 2023.
    2. VantageScore Solutions, " The Complete Guide to Your VantageScore ." Accessed March 22, 2023.
    3. FICO, " What's in my FICO Scores? " Accessed March 22, 2023.
    4. Equifax, " How Often Does Your Credit Score Update? " Accessed March 22, 2023.
    5. Experian, " How Long Does It Take to Get a Credit Score After Opening an Account? " Accessed March 23, 2023.
    6. Bank of America, " When should you consider a secured credit card? " Accessed April 11, 2023.
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