How to Build Credit With a Secured Credit Card


It doesn’t matter how well-intentioned a person is about their credit scores or financial health, life has a way of thwarting them.

Job loss, reduced income, and unexpected medical conditions can make keeping up with bills difficult or even impossible. Unfortunately, during the worst times of your life, it’s often your credit scores that suffer the most.

woman using credit card

Unfortunately, having bad credit can cause a domino effect on your finances. A low credit score typically means paying high interest rates when you borrow money or being denied a loan altogether.

Worse, it can also lead to higher insurance rates or missing out on your dream job. Your credit history may even make it impossible to get approved for new credit that could help you redeem yourself.

But, there is some good news if you are willing to jump through a few hoops to build your credit over time. With a secured credit card, you have the potential to rebuild your credit history and prove you can use credit responsibly. Even better is the fact that you can usually get approved for one regardless of how bad your credit is.

What is a secured credit card?

At this point, you’re probably wondering what a secured credit card is — and why it might work for you when nothing else will. A secured credit card is like an unsecured credit card that offers a line of credit since you can use it for purchases.

The main difference is that a secured card requires you to put down a refundable security deposit that is often equal to your credit limit. The cash you put down is your collateral. The credit card issuer will use it to repay your balance in the event you default. This is why they are coined as “secured,” but it’s also why almost anyone can get approved.

Most secured cards start you off with low limits — usually around $500. For a secured card with a $500 limit, your initial security deposit would likely be around $500 as well.

You’re basically borrowing against your own money each time you make a purchase with your secured card. This may not sound ideal (and it’s not). However, secured cards are typically the only credit cards consumers with poor credit can qualify for.

On-Time Monthly Payments Boost Your Credit Score

If you’re wondering what the point is, the answer is simple: Secured cards report your payment history to the three credit bureaus: Experian, Equifax, and TransUnion. When you use your secured credit card responsibly, your on-time payments will appear on your credit report. This helps you improve your credit score.

If you use a secured credit card long enough, it’s possible to improve your credit score enough to qualify for a traditional, unsecured card. At that point, you could close your secured card account and get your security deposit back.

5 Reasons You Should Consider a Secured Credit Card

For the most part, secured cards were created for individuals who cannot qualify for an unsecured credit card. Since they require a security deposit as collateral, they are not really offering you credit at all. These cards are for individuals who are on a mission of building credit.

Some people also use secured cards to build credit history from scratch. For people without a credit history, it can be difficult to get approved for any type of loan. Since secured credit cards are available to almost anyone, they allow consumers to build credit when they have none.

Are you the ideal candidate for a secured card? Here are five reasons you may want to consider this type of credit card — even if you’re on the fence:

  1. A secured credit card can help you build credit when nothing else will. When you can’t qualify for an unsecured card or any type of loan, a secured card could be your only path to building your credit score.
  2. You can qualify regardless of your credit score. Even if you have no credit history or your credit score is poor, you will most likely qualify.
  3. You can help your credit with minimal use. There’s no need to use your card daily to make a meaningful impact on your credit score. Making just a few purchases per month and paying them off can help your score quite a bit, since your payments will be reported to the three major credit bureaus.
  4. Build positive credit history safely. If you’re looking for a way to re-learn responsible credit use without a lot of risk, a secured card might be exactly what you need. Not only will you have a low limit to start, but your purchases will be secured by the security deposit you put down.
  5. Your secured card doesn’t have to be forever. Keep in mind that it doesn’t have to be the last credit card you own. Once you use your card enough to make a positive impact on your credit score, you can upgrade to a traditional credit card that offers more rewards and consumer perks.

What to Look for in a Secured Credit Card

When exploring the options for a secured credit card, be sure to compare the various features and terms offered to ensure you’re selecting a card that best supports your financial improvement journey. Here are some key factors to consider:

  1. Annual percentage rate (APR): This is the interest rate you’ll be charged if you carry a balance on your card. Since secured cards can have higher APRs, look for one with the lowest rate possible to minimize the cost of borrowing.
  2. Annual fees: Many secured cards charge annual fees, but the amount can vary widely. Aim to find a card with a low or no annual fee to keep your costs down.
  3. Credit limit: Typically, your credit limit on a secured card is equal to the deposit you make. Some cards, however, offer a higher limit than your deposit over time or after a series of on-time payments, enhancing your credit utilization ratio and potentially improving your credit score.
  4. Reporting: Ensure the credit card issuer reports to all three major credit reporting agencies (Experian, TransUnion, and Equifax). Regular reporting of your on-time payments can help build your credit history.
  5. Upgrade path: Some secured cards allow you to transition to an unsecured card after a period of responsible use, which can be beneficial for your credit score and financial flexibility. Look for cards that offer this feature without requiring a new application.
  6. Rewards and benefits: While less common, some secured cards offer rewards programs, cash back on purchases, or other benefits. These perks can provide additional value, making the card a more attractive option.
  7. Security deposit: The required deposit can vary, so consider what you’re comfortable paying upfront. Additionally, check whether the deposit is refundable and under what conditions you can get it back.

By carefully evaluating these aspects, you can find a secured credit card that not only helps you build or repair your credit but also offers the best possible terms and benefits for your situation. Remember, the goal is to use the secured card responsibly to pave the way for improved financial health and access to better credit products in the future.

Three of the Best Secured Credit Cards

Secured Chime Credit Builder Visa® Credit Card

This credit card from Chime® is one of the first of its kind. It’s also our top choice for the best secured credit card available.

Typically, banks have a set amount that you must deposit to open the account. However, there is no minimum security deposit6 required with this card. There’s also no annual fee or interest1.

All you need to apply is a Chime Checking Account and qualifying direct deposits of $200 or more. The checking account takes two minutes and there is no credit check to apply. Chime reports your payment history to all three major credit bureaus.

Discover it® Secured Credit Card

You’ll likely have a low credit limit with this secured credit card. However, you can earn 2% back on your first $1,000 in combined gas station and restaurant purchases each quarter, plus 1% back on all other purchases. That’s a pretty sweat deal for a no-fee card, let alone a secured card.

Like other secured credit cards, Discover it® Secured card also reports to all three credit bureaus, so you can build your credit over time. It comes with no annual fee, no hidden fees, and the potential to earn rewards on your spending. Keep in mind, however, that the interest rate on this card is a 24.99% variable rate.

Capital One® Platinum Secured Credit Card

Another solid choice is the Platinum Secured from Capital One®. This card also comes without an annual fee. However, the initial credit line (and corresponding security deposit) is only up to $200.

Capital One may give you a higher credit limit after five months of on-time payments.

These secured credit cards are a few of the best, but there are plenty of other cards to consider. As you search among card offerings, make sure to look for secured credit cards that feature:

  • No fees or extremely low fees
  • Added perks like access to your FICO score
  • The chance to raise your credit limit over time
  • Reporting to all three credit bureaus—Experian, Equifax, and TransUnion

How to Use a Secured Credit Card

There are several reasons it’s important to have a plan in place before you apply for a credit card and start using it for purchases. Choosing the right secured card is essential. But, even more important, is that you use it in a way that will benefit you the most.

Here are some steps you can take to ensure your secured card makes the maximum impact on your credit health and your finances:

Pay your bill early every month.

The most significant factor in your FICO score is your payment history. It makes up 35 percent of your score. So, you have to make sure you never make a late payment.

Before you sign up for a secured credit card, make sure you are prepared to pay your credit card bill early or at least on time each month. If you make late payments, your new card could hurt more than it helps.

Don’t max out your card.

The second most significant factor making up your credit score is the amount you owe in relation to your credit limits. For that reason, you’ll want to make sure you never max out your secured credit card, no matter how low your limit is. This way, your utilization will never climb high enough to damage your score.

Most experts suggest keeping your credit utilization below 30 percent. This means you need to carry a balance under $150 if you have a credit limit of $500.

Charge minor purchases and pay them off every month.

By using your secured card only for small purchases that you know you can pay back each month, you’ll improve your credit without getting into trouble. For example, you could set up a phone bill or cable bill to be paid with your secured card automatically. You could charge as little as $5 or $10 per month if you like.

Don’t use credit as an excuse to overspend.

Finally, never use credit as an excuse to buy items you don’t even need. This is especially important if your credit limit has increased. To keep your credit in good shape over the long haul, you need to have some restraint and discipline in your life. Only when you’re able to tell yourself “no” will you begin building a lifestyle where credit card debt is no longer a problem.

If you’re worried you cannot use a secured card in a way that will improve your situation, it’s possible you’re just not ready.

How much will a secured credit card raise my score?

The exact amount your credit score will increase with a secured credit card depends on your individual credit history and current credit score. However, if you use your secured credit card responsibly and make all of your payments on time, you can expect to see a positive impact on your credit score.

How else can I build credit?

A credit builder loan is another option for building credit. Similar to secured cards, credit builder loans are designed to help those with poor or no credit history to build or repair their credit.

These loans are usually offered by online lenders, credit unions, and community banks. The lender will place the loan funds into a savings account, which the borrower will not be able to access until the loan is paid in full.

The borrower pays back the loan through monthly payments, which are reported to the major credit bureaus. As the borrower makes regular payments on the loan, their credit score will begin to improve. Credit builder loans are a great way for those with poor or no credit history to begin building credit.

Bottom Line

Getting a secured credit card may not sound ideal. However, these cards provide one of the few options available for people who have credit so poor they cannot qualify for another credit card or loan. Still, that doesn’t mean that secured cards are a bad deal by any means.

In the real world, they can be used as a valuable tool. If you can get approved, you can use your card to prove your creditworthiness and rebuild credit over time. Eventually, you could even improve your credit enough to move on to better credit products without as many restrictions.

Before you give up on your credit, give secured credit cards a closer look. They may not be perfect, but they can save your credit when nothing else will.

Holly Johnson
Meet the author

Holly Johnson is a credit card expert, award-winning writer, and mother of two who is obsessed with frugality, budgeting, and travel.