How to build credit with a secured credit card

1
FG Trade/E+/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

If you have bad credit, you’re probably looking for ways to build your credit as quickly as possible. Using a secured credit card to build credit is something to consider.

Secured credit cards provide you with a small line of credit in exchange for an affordable, refundable security deposit. Secured cards are one of the best ways to build credit if you have a low credit score or a limited credit history. But you have to know how to use a secured credit card to build credit if you want to get the most out of these credit-boosting tools.

How do you use a secured card to build credit? How quickly can you build credit with a secured card? Let’s take a look at how secured credit cards work, how you can use a secured credit card to raise your credit score and how to choose the best secured credit card for your financial situation.

What is a secured credit card?

A secured credit card offers many of the benefits and protections of a standard credit card—but you have to put down a security deposit first. Why? Well, if you have poor credit or a limited credit history, lenders might wonder if you are going to be a risky borrower. Putting down a security deposit gives your lender some protection in case you default on your credit obligations. If you manage your line of credit responsibly, you’ll get your security deposit refunded in full.

How much will your security deposit be? It depends. Some secured credit cards allow you to open a line of credit after making a deposit of less than $50. However, most cards require you to match your credit line with an equivalent deposit—so if you want a $500 line of credit, for example, you’ll need to pay a $500 deposit. This is one factor to keep in mind as you decide which secured credit card is best for you.

People often use secured credit cards as a way to build their credit scores. In most cases, secured cards come with low credit limits and high interest rates. This makes it difficult to use secured credit cards to finance large purchases—and very expensive if you decide to carry a balance.

How to use a secured credit card to build credit

Do secured credit cards build credit? Yes—depending on how you use them. If you want to know how to build credit with a secured card, you’re going to need to understand the fundamentals of building good credit: making on-time payments, keeping your balances low and paying off your debts.

Building credit with a secured credit card is all about practicing those three habits. Use your secured card to make small everyday purchases and pay your statement balance in full every month. Avoid maxing out your credit card, and try to pay down any debts you had before you took out your secured card. The more work you put into actively building your credit, the faster you’ll achieve a good credit score.

How much will a secured credit card raise my score?

How much will a secured credit card raise your score? While we can’t say for sure how much your credit score might improve, we can tell you that using a secured card can boost your credit score relatively quickly—think “under six months”—especially if you focus on the five factors that make up your credit score:

If you want to start building credit with a secured card, make on-time payments every month. Maintain a good credit utilization ratio by keeping your debts low and paying off your balances. Avoid unnecessary hard credit inquiries that can lower your credit score. As your credit improves, so will your length of credit history—and as you become eligible for more lines of credit, you’ll be able to build the credit mix that might someday help you earn a perfect credit score.

Best secured credit cards to build credit

What’s the best secured credit card to build credit? It depends on what you’re hoping your secured credit card can do for you. Do you want to earn rewards on every purchase? Are you looking for a credit card that has no minimum credit score requirement? Would you like your account to be automatically reviewed for a higher credit limit?

You should also make sure that any secured credit card you choose allows you to put down a security deposit you can afford—because there’s no good reason to go into debt to take out a secured credit card.

Which secured credit card is right for you? Take a look at our complete list of best secured credit cards to learn more about what’s available. We’ve highlighted a few of our favorites below:

Capital One Platinum Secured Credit Card: Best secured card for building credit

Want to keep your security deposit as low as possible? The Capital One Platinum Secured Credit Card lets you establish a line of credit with a deposit as low as $49. Your credit limit is likely to be very low, compared to other secured cards—but you don’t need a lot of credit to build your credit score. You just need to use the credit you have responsibly, and Capital One’s CreditWise® app can help you learn how your day-to-day spending decisions affect your credit score.

Open Sky® Secured Visa® Credit Card: Best secured card with no minimum credit score requirement

Some credit card issuers will turn people down for secured cards if their credit scores are too low. The Open Sky® Secured Visa® Credit Card has no minimum score requirement, making it an excellent card for people with no credit or very poor credit. In addition to putting down a security deposit of at least $200, you’ll need to pay an annual fee of $35 to access this card—so keep that in mind before you apply.

Discover it® Secured Credit Card: Best secured card with cash back rewards

Want to earn rewards as you build your credit? The Discover it® Secured Credit Card offers 2 percent cash back on gas stations and restaurants (for up to $1,000 in combined spending per quarter, then 1 percent) and 1 percent on all other purchases. New cardholders can take advantage of Discover’s Cashback Match program, which matches all of the cash back you earn during your first year. Like the Open Sky Secured Visa, you need a minimum $200 security deposit to access this card—but you won’t have to pay an annual fee, and you’ll earn cash back on everything you buy.

When to upgrade to an unsecured credit card

When should you switch from a secured credit card to an unsecured credit card? In some cases, your credit card issuer will automatically transition you to an unsecured credit card after you’ve proven you can use your secured credit card responsibly. If you have the Discover it Secured Credit Card, for example, it’s possible to graduate to an unsecured Discover card with just seven months of good payment behavior. When a credit issuer upgrades you from a secured card to an unsecured card, your security deposit will be refunded—and you may even receive a higher line of credit.

In other cases, you’ll need to close out your secured credit card before you can receive your security deposit back and you may need to apply for an unsecured credit card on your own. Read the fine print before you apply for a secured credit card to learn exactly what the rules are regarding security deposit refunds and graduating to an unsecured card.

If your credit card issuer doesn’t automatically consider you for an unsecured credit card, how do you know when it’s time to apply for one on your own? Start by getting at least six months of positive credit habits under your belt. Check your credit score on a regular basis to ensure it’s moving in the right direction and review your credit report to make sure all of the information is accurate. If your credit history has improved, it might be worth applying for one of the best credit cards for people with bad credit—or, depending on your new credit score, one of the best credit cards for people with fair credit.

The bottom line

Building credit with a secured credit card is an important step in getting your finances back on track. Use these tips to help you establish a positive credit history, transition to an unsecured credit card and work your way toward all of the benefits that good credit has to offer.