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How to Use a Secured Credit Card to Build Credit

How to Use a Secured Credit Card to Build Credit

*Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It may not have been reviewed, approved or otherwise endorsed by the credit card issuer. This site may be compensated through a credit card issuer partnership.

This article was last updated Jul 18, 2019. Terms and conditions may have changed. For the most accurate information, please consult the issuer website.

Looking to build or rebuild your credit score and can’t qualify for a regular, unsecured credit card? Then a secured card may be just what you need.

What differentiates a secured card from a regular, unsecured card is that the issuer requires you submit a security deposit, which will serve as your credit line for the secured card.

The security deposit acts as collateral, protecting the bank in case you don’t pay off what you charge with card. In most cases, the amount of your security deposit becomes your credit limit. Deposit amounts vary by card. You can usually start out with a deposit of a few hundred dollars, and some cards will allow you to deposit up to a few thousand dollars. It all depends on what you can afford.

Just know you have to make payments to cover what you charge to a secured credit card. Your deposit does not cover your monthly payment.

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In addition to helping build or reestablish your credit, a secured card can help control credit card spending. It can be too easy to max out a card and be left with a bill you can’t afford to pay in full — and with interest rates in the double digits, the fees that get added to that balance over time only make it harder to pay it down.

Because secured credit cards often have lower credit limits than unsecured cards, and you have to make a deposit, they can reduce that temptation to charge more than you can afford to pay off, while giving you the convenience of having a card to use when paying with cash is not an option.

How to build credit with a secured credit card

If you have no credit or bad credit, a secured card can help you start your credit history or improve it. Here are some things to keep in mind:

  • Make sure you actually use the card. Most secured cards report payment activity to the credit bureaus, so as long as you make a charge once a month and pay it off when the bill is due, you will have that transactional activity reported to the bureaus.
  • Pay on time and in full every month. Your job is to make sure that your card issuer is only reporting positive updates to the credit bureaus — and by positive updates, we mean on-time payments. If you make all of your payments on time and in full, this will be reported to the credit bureaus, and the more positive payment history on your credit report, the higher your credit score will rise. And if you pay off the full amount rather than carrying a balance, you can save a substantial amount of money you’d be charged in interest.
  • Keep your utilization low. In addition to making on-time payments, you want to show that you aren’t going to give in to temptation and max out your card’s limit. Keeping a low balance to credit limit is called your utilization rate. Ideally, you shouldn’t carry a monthly balance that’s more than 30% of your total available credit. So if you have a secured card limit of $200, you never want to leave a balance of more than $40 each month.

A good way to satisfy all of these points is to set up a small recurring cost to bill to your card (such as a streaming service) and to set up autopay so you never miss a payment. This way you use the card each month, you pay on time, and you only use a small amount of your limit.

How fast will a secured card build credit?

There are no shortcuts when it comes to building or improving your credit. A secured credit card will boost your credit score just like any other credit card that reports to the credit bureaus (Equifax, Experian and TransUnion). It’s your usage that matters — making on-time payments and keeping your utilization low.

To monitor your efforts, you should pay attention to your credit score. One of the most commonly used credit scores is the FICO score. If your FICO is below 580, this is considered poor credit. If it’s 580-669, that’s considered fair credit. A score of 670-739 is good credit, while 740-799 is very good. Finally, scores of 800-plus are considered exceptional.

Read how one CompareCards employee raised her credit score by 100 points in 30 days.

Good secured card offers

There are numerous secured card offers, and here are three of our favorites: Discover it® Secured Credit Card, Secured Mastercard® from Capital One and Citi® Secured Mastercard®. All of these secured cards report to the three major credit bureaus, which will help you build credit if used responsibly. Here’s a summary of the features of each card:

Discover it® Secured Credit Card Secured Mastercard® from Capital One Citi® Secured Mastercard®
Annual fee $0 $0 $0
Minimum security deposit $200 $49, $99 or $200 $200
APR 22.99% Variable APR 26.99% (Variable) 22.49% (Variable)
Extra perks FICO® Score with Discover Credit Scorecard, Rewards Program, monthly account reviews starting at 8 months VantageScore® using CreditWise®, potential for a higher credit line None

How to compare secured card offers

To compare secured cards from multiple issuers, use helpful tools like our comparison feature that breaks down the various differences between cards such as minimum credit score, card fees and other additional details. With this tool you don’t have to worry about switching between websites to see which card suits your needs — you can conveniently compare as many cards as you like all in one place.

You can also find secured offers at local banks and credit unions where you live. Often, you’ll have to visit your local branch to apply for a secured card, and credit unions often require membership (which may or may not come with an annual fee). Before applying for a card from a major issuer, be sure to consider local options as well.

Discover it® Secured Credit Card

  • 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases - automatically

  • Credit line will equal your security deposit of $200 or more*

  • No annual fee, no late fee on your first late payment. No penalty APR*

  • No Annual Fee, earn cash back, and build your credit with responsible use.
  • Using your secured credit card helps build a credit history with the three major credit bureaus. Generally, prepaid and debit cards can’t do that.
  • Establish your credit line with your tax return by providing a refundable security deposit of at least $200 after being approved. Bank information must be provided when submitting your deposit.
  • Automatic reviews starting at 8 months to see if we can transition you to an unsecured line of credit and return your deposit.
  • Earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically.
  • Discover is accepted nationwide by 99% of the places that take credit cards.
  • Get 100% U.S. based customer service & get your free Credit Scorecard with your FICO® Credit Score
  • INTRO OFFER: Unlimited Cashback Match – only from Discover. Discover will automatically match all the cash back you’ve earned at the end of your first year! There’s no minimum spending or maximum rewards. Just a dollar-for-dollar match.
  • Get an alert if we find your Social Security number on any of thousands of Dark Web sites.* Activate for free.
  • See Rates & Fees

See additional details for Discover it® Secured Credit Card

More Info

The Discover it® Secured Credit Card has a $0 annual fee and requires a security deposit of $200 or higher. This card is unique in several ways. It comes with a rewards program where you will earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter, 1% unlimited cash back on all other purchases - automatically Although rewards are not the main reason for getting a secured card, they certainly are a nice perk. Another great feature of the Discover it® Secured Credit Card is Discover’s automatic monthly reviews of your account starting at eight months to see if you can be transitioned to an unsecured card. This takes the guesswork out of wondering when you’re ready for an unsecured card. You won’t be charged a late fee on your first late payment, after that it’s $40, so be sure to set up auto pay. Other features of this card include access to your FICO® Score with Discover Credit Scorecard, which allows you to track your progress over time, Social Security number alerts, and more.

Secured Mastercard® from Capital One

The Secured Mastercard® from Capital One has a $0 annual fee, and you will get an initial $200 credit line after making a security deposit of $49, $99 or $200. This card is potentially a good option for people who can’t afford a $200 security deposit — keep in mind the lower deposit is not guaranteed. There are no rewards associated with this card, but a nice perk is the potential to access a higher credit line after making your first five monthly payments on time with no additional deposit needed. You will also have access to your VantageScore® (another consumer credit scoring system similar to FICO) using CreditWise®, allowing you to monitor your credit progress.

Citi® Secured Mastercard®

The Citi® Secured Mastercard® has a $0 annual fee, and you must make a security deposit of at least $200. This is a bare-bones secured card that doesn’t include a rewards program or any significant benefits. Similar to the other secured cards mentioned, Citi® Secured Mastercard® reports to the three major credit bureaus, and if you practice responsible credit behavior you can build good credit.

Secured cards vs. prepaid cards

When you’re looking to build credit, you may wonder how secured cards and prepaid cards differ. At first glance, these cards may look similar — they both require you to deposit money. However, secured cards and prepaid cards have different purposes. While secured cards are great for building credit, prepaid cards are not. Here are the key differences between the two:

  • Prepaid cards do NOT report to credit bureaus. Most secured cards report to the three credit bureaus, while prepaid cards do not. That means you can’t build credit with a prepaid card. You can build credit with a secured card.
  • You have to make payments on a secured card. While prepaid cards act like a debit card, secured cards require you to take action and pay at least your minimum payment each month (though we recommend paying your balance in full).
  • Prepaid cards come with more fees. With secured cards, you will be charged interest and other fees on past due balances. Most prepaid cards charge numerous fees that you won’t find with secured cards, such as processing fees, card activation fees, monthly fees and more.

The bottom line

If you are new to credit or you have bad credit, a secured credit card might be just what you need. Some cards, such as the Discover it® Secured Credit Card, will even consider upgrading you to an unsecured credit card after you demonstrate responsible behavior with your secured card.

Once you’ve established or improved your credit score, consider whether some of these credit cards for good credit scores might be useful to you. Whether you’re looking for cash back, travel rewards, or just a lower APR, you’ll have more options with a good credit score.

But even if you qualify for cards with better rewards after improving your credit, remember to maintain good credit card behavior. Those habits you learned with your secured card — using your card regularly for regular purchases, paying on time and in full, and keeping your utilization ratio low — are the path to success even if your credit score starts to approach the upper limits.

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September 25, 2020