How to Build Credit With a Secured Credit Card


No matter how much a person cares about their credit score and financial health, life has a way of thwarting even the most well-intentioned plans. Job loss, a reduction in income, and unexpected medical conditions can make keeping up with bills difficult or even impossible. During the worst times of your life, it’s often your credit score that suffers 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. And if your credit is strained enough, it may even be 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 improve your credit health 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 deposit that is often equal to your credit limit. The cash you put down is your collateral, and it will be used 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. In the case of 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 card. This may not sound ideal (and it’s not), but secured cards are often 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 to the three credit bureaus — Experian, Equifax, and TransUnion — just like unsecured cards. As a result, responsible credit use by making your monthly payments on time can help you boost your credit score over time.

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 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 deposit as collateral and thus are not really offering you credit at all, these cards are for individuals who are on a mission of building credit.

Also, note that some people use secured cards to build a credit profile from scratch. The reason behind this is the fact that, when you don’t have a credit history, it can be difficult to get approved for any type of loan. Since they’re typically available to almost anyone, they offer an easy way for 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. You may be able to qualify if your credit score is poor — and even if you don’t have any credit history at all.
  3. You can help your credit with minimal use. You don’t have to start using 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 3 major credit bureaus.
  4. Build positive credit habits in a safe way. 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 deposit you put down.
  5. Your secured card doesn’t have to be forever. Also, 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 move on to unsecured cards that offer more rewards and consumer perks.

What to Look for in a Secured Credit Card

Since secured cards are intended for people with poor credit, they don’t always come with the best rates and terms. They usually have high fees and interest rates and also tend to be light on benefits and perks.

However, some of the newer offerings come with a surprising number of benefits and a good value proposition. While you’ll likely have a low credit limit with this card, the fact that 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 is a dream come true for a no-fee card, let alone a secured credit card.

Discover it® Secured Credit Card

Like other secured credit cards, Discover it® Secured card also reports to all three major 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.

Secured Mastercard® from Capital One®

Another solid choice is the Secured Mastercard® from Capital One®. This card also comes without an annual fee, although the initial credit line (and corresponding deposit) is only up to $200. However, Capital One does state that you may be able to qualify for a higher credit limit after five months of making your payments on time.

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 the three major 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. Not only do you want to make sure you get the right card, but you want to ensure you’re using 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.

Because your payment history makes up the highest percentage of your FICO score at 35 percent, 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 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 important 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 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, which would mean carrying a balance under $150 if you have a credit limit of $500.

Charge minor purchases and pay them off every month.

One way to ensure you improve your credit without getting into any trouble is by using your secured card only for small purchases each month you know you can pay off. 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 want to.

Don’t use credit as an excuse to overspend.

Finally, never use credit as an excuse to buy items you don’t even need — especially if you get in a position where 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.

Bottom Line

While getting a secured credit card may not sound ideal, these cards provide one of the only 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.