How do you feel when your personal and financial details are insecure? Do you wish to improve the security of your credit card so as to enjoy the benefit that comes from having a secure credit card?
If yes, you should be excited to have come across this article right now. Here, I am going to be exploring how a secured credit card raised my Score. Do well to read to the end.
A secured credit card is a type of credit card that requires a security deposit to open an account. The cardholder makes a one-time, refundable deposit that acts as collateral for the credit card issuer.
A secured credit card can be a great option for people who are building, rebuilding, or establishing credit. Secured credit cards function a lot like traditional credit cards.
The primary difference is that with a secured card, you pay a cash deposit upfront to guarantee your credit line. See Caribbean Cinemas Gift Cards.
While credit history may be used to determine eligibility for a secured card, the line of credit it offers requires a security deposit.
A secured credit card is nearly identical to an unsecured credit card, but you’re required to make a minimum deposit (known as a security deposit), to receive a credit limit. The deposit is typically $200, but may be higher or lower depending on the secured card you open.
Secured cards are often marketed toward people looking to build or rebuild their credit. As a result, the security deposit acts as collateral if you default on payments, but it’s completely refundable if you upgrade to an unsecured card or pay off your balance in full and close your account.
Interested in getting more detailed information about How a Secure Credit Card Raise your Score? If yes, kindly read this article carefully to the end.
How Secured Credit Cards Work
After you make the minimum security deposit, you can start using your secured card just like any other credit card. You can spend up to your credit limit, which is often equal to your security deposit.
So a $200 security deposit equals a $200 credit limit. If you want more spending power, you’ll need to deposit more money. The maximum amount you can deposit varies by secured card, but can be up to $2,500.
Some secured cards, such as the Capital One Platinum Secured Credit Card, may offer a higher credit limit (with no additional deposit required) after you make the first five monthly payments on time, which is also a great incentive to practice responsible credit behavior.
You will incur interest charges if you carry a balance month to month, so make sure you pay your bill in full and on time, which also helps your credit score.
Actions you take with a secured card are reported to the three main credit bureaus (Experian, Equifax and TransUnion), so it’s crucial to avoid maxing out your card and paying off your balance each month.
Secured credit cards vs. unsecured credit cards
Trying to decide between a secured or unsecured card? Your credit score might play a big role in your decision-making.
If you have less-than-stellar credit, a secured credit card may be the better option since they’re typically easier to qualify for with poor credit (scores below 580) or no credit.
If your credit is already good or excellent (scores 670 and greater), an unsecured card can provide you with better benefits that may earn you rewards in common spending categories, such as dining, gas and groceries, Global Entry or TSA PreCheck credit and added entertainment perks. Check out our round up of the best credit cards.
If you decide that a secured card is the best option, consider some of the best secured credit cards listed below. Once you improve your credit, you can transition to an unsecured card.
If you can’t afford the $200 security deposit, you should look to other ways to raise your credit score, including becoming an authorized user on someone else’s account.
You might also want to look for a card geared toward consumers with low credit that don’t require a deposit. CNBC Select has a few suggestions in our roundup of the best cards for building credit.
How to apply for a secured credit card
Applying for a secured credit card can work differently depending on the credit card issuer. But here’s how applying for a secured card could work:
1. Get approved for a secured card
It may help to learn more about how to apply for a credit card. You could also check whether you’re pre-approved for a card. It’s quick and secure—and checking won’t hurt your credit score.
As with any credit card, getting approved for a secured card isn’t guaranteed. Each credit card company has its own policies and qualifications.
Aside from a security deposit, there may be additional requirements based on creditworthiness. And before you apply, be sure to consider whether there are any random or hidden fees.
2. Make your deposit
Some card issuers allow you to fund your deposit over a period of time. Others may require you to pay it upfront. The amount you pay as a security deposit can vary.
A security deposit may be the same amount as your line of credit. For example, a $200 deposit might give you a $200 credit limit.
On the other hand, some cards—like the Capital One Platinum Secured card—might provide a credit limit that’s higher than the amount of the security deposit. For example, a $200 credit limit might only require a $49 or $99 security deposit.
3. Start using your secured card
Once you’ve been approved for a secured credit card and made your deposit, you can use the card to make purchases in person or online—just like with a traditional unsecured credit card.
Many secured cards look like typical credit cards. So chances are no one but you will know you’re using a secured card.
If your goal is to build credit, it’s important to use your credit card responsibly. That means doing things like paying your statement on time every month.
Reading up on how statement balances and payment options work can help prepare you to keep up with your monthly bills.
Potential benefits of secured credit cards
There are plenty of advantages to using secured credit cards. A secured card could help you:
- Gain experience using a credit card
- Have access to a line of credit when you need it
- Build your credit with responsible use, like paying your bill on time every month
- Work toward qualifying for a credit card with better rewards or a higher credit limit
Tips for using a secured credit card to build credit
When it comes to using a secured card, credit-building tips are much the same as those for a traditional credit card. Here are a few you can use to help set yourself up for success:
Understand your deposit: Make sure you’re able to fully fund your deposit within the time frame required by the card issuer. If you don’t fund the deposit in time, there’s a chance the lender may close your account.
• Keep track of your spending: Your credit card may be declined if you exceed your credit limit. And if you’re paying interest, you could end up owing more than your initial deposit.
•Use a budget: If you use the card only for a few fixed purchases a month, it may be easier to stay within your limit. And that could help you get used to using a credit card.
•Consider your monthly payment: Paying your last statement balance in full each month by the due date can help you avoid paying interest and late payment fees.
•Choose a card issuer that reports your credit activity: Some credit card issuers may not report secured credit card accounts. If you’re looking to build your credit by responsibly using a secured card, make sure your issuer reports to at least one of the three major credit bureaus: Experian®, Equifax®, or TransUnion®.
How Much Will a Secured Credit Card Raise My Score?
Just how much a secured credit card might raise your credit score depends on how you use the card and whether you already have a credit score.
People with no credit histories may look forward to an average credit score in around six months, provided they maintain responsible credit habits.
If you have an existing credit history, you may see the effect of your new card’s usage in a month or two, although it might not be very pronounced.
To open a secured credit card, you will need to pay a security deposit, which distinguishes it from regular unsecured credit cards.
Given the need for a security deposit, they are typically easy to get. Depending on the card you select, you might need to pay an annual fee. Some cards from this segment let you earn cashback/rewards.
One of the biggest benefits of secured credit cards is that they enable you to build your credit score even if you don’t qualify for a conventional credit card.
Pros & Cons of Secured Credit Cards
- Can help build credit
- Easier to qualify for than unsecured cards
- May be possible to upgrade to an unsecured card
- Need to provide a security deposit
- Credit limit depends on security deposit
- Might need to pay annual fees
Does a Secured Credit Card Build Credit?
A secured credit card can help you build credit, provided you use it responsibly. For example, making all your payments on time and not using too much of your credit line typically helps improve your credit score. However, a maxed-out secured card or making late payments can hurt your credit score.
People who wish to rebuild their credit need to remember that applying for a new secured card results in a hard credit inquiry, which can cause their credit score to drop.
However, this slight dent is usually temporary and easy to fix if you establish good habits around using your new card. See Branded Gift Cards.
How Long Does It Take to Build Credit?
How quickly your credit score increases and by how many points depends on the starting point and how you use your new card.
Credit bureaus typically need three to six months of account activity to generate your starting credit score. So if you do not yet have a credit score, a secured card might help you get to a “fair” score in around six months.
But if you have poor credit, improving your score might take longer since you have already established a baseline credit history and will need to prove you can manage your new credit line responsibly over time.
How to Build Credit Fast Using a Secured Credit Card
The best way to improve your credit score with credit cards is to pay off your balances in full each month. By doing this, you can fully enjoy the benefits your card has to offer without paying any interest charges.
•Make payments on time. Ensure that you are making all your payments on time. Your payment history is the most influential factor in your credit score, accounting for 35%.
•Keep your outstanding balance low. If you cannot pay off your balances in full each month, keep your outstanding balance below 30% of the card’s credit limit. The amount you owe also referred to as your credit utilization ratio accounts for 30% of your credit score.
•Don’t apply for multiple cards in quick succession. Every time you apply for a credit card, your credit score drops by a few points. As a result, it’s best to wait at least six months between each new credit application. New credit accounts for 10% of your credit score.
•Get a credit-builder loan. The types of credit you have in your mix account for 10% of your credit score. With a credit-builder loan, you make payments to the lender until you repay the loan entirely, and only then do you get access to the funds.
When to Upgrade From Secured to Unsecured
Some credit card issuers conduct automatic account reviews to determine if secured cardholders may qualify for unsecured variants based on their payment histories and other factors.
This might happen after the first six months. If your card provider does not offer automatic reviews, you may request an upgrade on your own.
If you have a secured card that charges an annual fee, you might be able to upgrade to a no-annual-fee card. Depending on your card, you might also be able to upgrade to one that offers cashback/rewards and other benefits.
Best Secured Credit Cards to Build Credit
I have selected the best secured credit cards to help you build credit based on parameters such as annual fees, APRs, minimum security deposit amounts, rewards and the ability to upgrade to unsecured cards.
Chime Credit Builder Secured Visa Credit Card – Ideal for people who wish to avoid hard credit pulls
The Chime Credit Builder Secured Visa Credit Card comes with no annual fees. You need to add at least $200 to your Credit Builder secured account, and the same works as your card’s credit line.
You may use the money from this account to pay off your balances. You don’t have to worry about a hard credit inquiry when you apply for this card. It reports payment history to the credit bureaus TransUnion, Equifax, and Experian. You pay no foreign transaction fees when you use this card outside of the U.S.
Citi Secured Mastercard – Ideal for people who need higher credit limits
You pay no annual fees to use the Citi Secured Mastercard. The security deposit you will need to provide may vary from $200 to $2,500. This card reports payment history to Equifax, Experian and TransUnion. You can also choose your due date.
Using this card when traveling outside the U.S. or with international merchants requires that you pay foreign transaction fees.
Navy Federal Credit Union rewards Secured Card – Good for earning rewards
The no-annual-fee Navy Federal Credit Union nRewards Secured Card lets you earn rewards while you’re on the path to building/rebuilding your credit. It offers 1X points per dollar on all purchases.
You may redeem the points you earn as a statement credit or cash or for gift cards and merchandise. You might qualify for a higher credit limit after three months and an unsecured card after six months.
It reports payment history to the top three credit bureaus. Using it outside of the U.S. comes with no foreign transaction fees.
How to Compare Credit Cards
If you wish to take advantage of the benefits of secured credit cards, it’s important to select one that suits your spending habits and needs. Not all cards have the same features, so you’ll want to carefully weigh your options.
1. Annual fees
While some of the top secured cards we’ve selected come with no annual fees, others require that you pay a nominal fee.
Pay particular attention to this aspect if you plan to carry forward balances from one billing cycle to the next.
Some secured cards like the Navy Federal Credit Union nRewards Secured Card and the Bank of America Customized Cash Rewards Secured Card give you the ability to earn rewards.
4. Foreign transaction fees
Find out if you need to pay foreign transaction fees — particularly if you plan to use your card outside the U.S.
I hope you have seen what a secure credit card is all about and how it can raise your scores in this article. In case of any other questions about how a secured credit card can raise your score, kindly make use of the comment section below.