How to Use a Secured Card to Successfully Build Your Credit


If you’re trying to get approved for a credit card but find that you have poor or nonexistent credit, you’ve probably realized it’s a losing battle. You need good credit to get a credit card, but you need to get a credit card so you can build good credit.

All’s not lost. there are a few alternatives to getting a traditional credit card that will help build good credit, with the main option being a secured card.

Here are the steps you can take to get a secured card that best meets your needs and start building up a positive credit history.

What is a secured credit card?

A secured credit card works a lot like a regular credit card – it’s a revolving line of credit you can spend and pay back every month. The main difference is that a secured card is backed by cash you set aside up front to use as collateral for purchases.

The idea is that your line of credit is “secured” by the funds you pre-deposit at the bank issuing the secured card. If you want a $1,000 spending limit, for example, you’ll have to put $1,000 into a deposit account tied to your secured credit card.

It’s a helpful way to budget your money because when the amount on the card is spent, you’ve reached your limit. If you want the convenience of a credit card but don’t have the credit to qualify for one, a secured card is a smart alternative.

How do secured credit cards help your credit?

If you have no or poor credit, opting for a secured card is an effective way to build a positive credit history, since the perks for using a secured card are similar to those of a traditional credit card. You can use it wherever credit cards are accepted, for both online and offline purchases, and your payments are reported to the credit bureaus.

Secured credit cards can be used just like traditional credit cards to make payments online for household bills like, electric, internet and other monthly expenses. This will allow you to build credit by making purchases and then paying them off each month.

Requirements for getting a secured card

Not everyone qualifies for a secured credit card; it depends on the amount of your up-front deposit, as well as your income and ability to pay back the funds. Whether or not you’ve filed for bankruptcy recently, or have a discrepancy on a background check, are also factors that will determine your creditworthiness when applying for a secured card.

A good place to start when seeking out a secured credit card is with your current bank or a local credit union. Most of the popular financial institutions, such as Capital One and Discover, offer accessible lines of credit with low balances and $0 annual fees.

The average initial deposit ranges from $200-$2,000 depending on how much you’re approved for and how much cash you have on hand. Remember, this deposit amount will determine how large or small your line of credit on the secured card is and how much buying power you have.

Secured card drawbacks and potential risks

Thoroughly research and review the features each type of secured card offers so you can get the most benefits possible. Also, find out which credit bureau this secured card reports to every month. The goal is to find one that reports to more than one institution so you can build credit with all three major credit bureaus.

Just beware that you don’t go over your line of credit limit, which is the total amount of your pre-deposited funds. And if you don’t pay the full balance on your secured card every month, you’ll incur interest charges just like you will with a traditional credit card.

How long will it take to see results?

The goal of using a secured credit card is to help you build a solid history of credit over time. So don’t expect to positive results overnight.

Your spending and payments habits will play a major effect on your credit score based on whether or not you:

  • Make regular payments on time: This is one of the biggest factors to establishing good credit, so always pay the balance due on time. Make regular payments on time, every single month.
  • Pay your balance in full: Don’t charge purchases you won’t be able to pay off. Your goal is to make purchases and pay them off on a regular basis. This will go a long way to proving you’re a low-risk customer.
  • Do not fully max out the credit limit: Use your secured card responsibly by not maxing out the entire credit limit. Use it for small purchases every month and pay off the entire balance. Aim for credit utilization of 30 percent or less so you won’t negatively affect your credit.

Once you’ve established a good history of paying on time and properly managing your secured credit card account, you’ll start seeing positive results in a matter of months. In about a year, the financial institution will usually upgrade your account to a traditional credit card.

Secured credit cards can be a very powerful tool to rebuild credit, as long as you use them responsibly and with care. Be sure you understand all the risks and drawbacks so you can maximize the benefits and get on the right path to financial freedom.

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