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.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.50% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.49% effective March 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.50% – 7.27%1||Undergrad & Graduate|
|2.50% – 7.12%3||Undergrad & Graduate|
|2.81% – 8.79%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.55% – 7.12%5||Undergrad & Graduate|
|3.00% – 9.74%6||Undergrad & Graduate|