If you are new to lending or your credit score is low, a secured credit card can be one of the most useful tools for building credit.
Of course, it’s not glamour. Most of the time it will not offer rewards and a high credit limit will require a significant investment. However, these seemingly unimpressive credit cards can make a huge difference to your credit.
Several years ago, I drove my credit into a ditch. My secured credit card bailed me out of this. Read on to find out how this happened and how you can increase your bill with a secure credit card.
Read all the answers from our credit card experts.
Ask Anna a question.
How much will a secured credit card raise my account?
It’s hard to say how much or how quickly a secured credit card can raise your score. Everyone’s credit situation is unique.
For example, if you’re new to lending and building it from scratch, a secured credit card can quickly give you a great boost. On the other hand, if you are rebuilding a loan and there are negatives on your credit report (such as late payments and defaults), the process is likely to be much slower.
Let me share a personal example of how I increased my secured credit card credit from fair to good in three years.
Back in 2018, my credit was in a sad place. I had defaults on two credit cards, had a few petty fees ruining the picture, and only paid off one auto loan to keep my score from dropping to a low score. The credit card issuers weren’t exactly fighting for my business, but Capital One approved my Capital One Platinum Secured Credit Card, and that’s how my journey back to good credit began.
It wasn’t fast, but my credit score was improving. Thanks to the courtesy of collectors, I removed some of the collections when I paid them off, and by the summer of 2019, my credit had increased from about 620 to 640.
I used my secure card very carefully. My original credit limit was $200, but Capital One increased it to $500 after six payments on time. I basically staked small expenses here and there and paid them off right away to keep my credit usage down.
In March 2020, Capital One quietly tripled my line of credit from $500 to $1,500—not bad considering my initial deposit was only $200. I called Capital One and asked if I could upgrade to an unsecured card and the rep suggested I change the product to a Capital One Quicksilver Cash Rewards credit card.
Fast forward to March 2021 and my credit score was over 50 points higher than it was three years ago.
Of course, there was more to my credit recovery strategy than just one secured credit card. I used Experian Boost, took out a new car loan, and added a few more cards. But it was my secured card that pushed me towards the loan.
How to build credit with a secured credit card
Whether you’re starting to build your credit from scratch or, like me, trying to fix it after a series of credit mistakes, a secured credit card can offer help.
Here’s what you can do to use it to your advantage.
Find a good secured credit card
Like any type of credit card, secured credit cards are not created equal. Pay attention to the conditions and commission. There is no reason for a secure card to charge an annual fee, and some cards will also try to charge you hidden fees. Look for a card that will only cost you a deposit.
My favorite secured credit card is the Discover it® Secured Credit Card. It’s a secure card unicorn as it offers cash back: 2% at gas stations and restaurants (up to $1,000 on purchases per quarter) and 1% on everything else. Any cashback you earn in your first year with the card will also be balanced.
Practice good credit card habits
A secured card provides an opportunity to demonstrate responsible credit behavior. Do this by always paying on time and using less than 30% of your line of credit for good credit use. For example, if your credit limit is $300, never allow your card balance to exceed $90. Paying in full several times a month can help keep your balance in check.
It is best to never carry over the balance to the next month. Not only will this ensure good credit utilization, but it will also allow you to avoid high interest rates and credit card debt.
Request a product change
Once your credit score has improved, it may be a good idea to call the issuer and ask for a product change. The issuer may want to transfer you to an insecure version of the card, or to another card altogether. This may be possible even if your credit history is not yet in order, but you have consistently demonstrated good credit behavior for a year or two. Issuer loyalty often pays off.
Keep your map open
Even if you haven’t upgraded to a better card, keep a secure card open after it’s done its job. You may now have better cards – and your credit may be good or excellent – but don’t give up on your old secure card (unless it charges a fee). You can use it for minor payments like a Netflix subscription to keep it active.
Closing a credit card is bad for your credit as it can negatively impact your credit usage and reduce the average age of your accounts. I would suggest waiting a few years before closing your old card to soften the blow.
bottom line
It’s hard to say how much a secured credit card will increase your credit or how long it will take to build credit with this type of card. There are many factors such as any negative information on your credit report and other types of debt you may currently have.
However, a secured credit card can be a game changer. As uninteresting as it may seem, it can be a lifeline for people with bad credit or a first step for newcomers to the lending industry.
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The editorial content on this page is based solely on the objective judgment of our contributors and is not based on advertising. It was not provided or ordered by credit card issuers. However, we may receive compensation when you click on links to our partners’ products.
