If you have bad credit, you’re probably looking for ways to increase your credit as quickly as possible. Using a secured credit card to create credit is something to consider.
Secured credit cards give you a small line of credit in exchange for a refundable and affordable 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 augmentation tools.
How do you use a secure card to create credit? How fast can you create 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 boost 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 must first deposit a security deposit. Why? Well, if you have bad credit or a limited credit history, lenders might be wondering if you are going to be a risky borrower. Depositing a security deposit gives your lender some protection in the event that your credit obligations default. If you manage your line of credit responsibly, you will get a full refund of your security deposit.
What 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 limit with an equivalent deposit. Therefore, if you want a line of credit of $ 500, for example, you will need to pay a deposit of $ 500. This is a factor to keep in mind when deciding which secured credit card is best for you.
People often use secured credit cards to establish their credit scores. In most cases, secure cards come with low credit limits and high interest rates. This makes it difficult to use secure credit cards for finance large purchases– and very expensive if you decide to carry a balance.
How to use a secured credit card to create credit
Do Secured Credit Cards Create Credit? Yes, depending on how you use them. If you want to know how to create credit with a secured card, you will need to understand the fundamentals of build good credit: Make payments on time, keep your balances low and pay off your debts.
Creating credit with a secured credit card is all about practicing these three habits. Use your secure card for small daily purchases and pay your statement balance in full each month. Avoid maximize your credit cardand try to pay off debts you had before removing your secure card. The more work you put into actively building your credit, the faster you will reach a good credit rating.
How much will a secured credit card increase my score?
How much will a secured credit card increase your score? While we can’t say for sure how much your credit score could improve, we can tell you that using a secured card can boost your credit score relatively quickly – think “less than six months.” “- especially if you are focusing on the five factors that make up your credit score:
If you want to start accumulating credit with a secure card, make payments on time every month. Maintain a good credit utilization ratio by keeping your debts low and paying off your balances. Avoid unnecessary ones difficult credit applications which can lower your credit score. As your credit improves, so will the length of your credit history. As you become eligible for more lines of credit, you will be able to create the combination of credits that could one day help you earn. perfect credit score.
Best Secure Credit Cards to Create Credit
What is the best secured credit card for creating credit? It depends on what you hope your secure credit card can do for you. Do you want to earn rewards on every purchase? Are you looking for a credit card that doesn’t have a minimum credit score requirement? Would you like your account to be automatically screened 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 that you can afford, as there is no good reason to go into debt to get a secured credit card.
Which secured credit card is right for you? Take a look at our full list of best secured credit cards to find out more about what’s available. We’ve highlighted a few of our favorites below:
Capital One Secure Mastercard®: the best secure card for mortgage loans
Want to keep your security deposit as low as possible? the Capital One Secure Mastercard® allows you to set up 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. All you need to do is use the credit you have responsibly, and Capital One’s CreditWise® app can help you understand how your daily spending decisions affect your credit score.
Open Sky® Secured Visa® credit card: Best secure card with no minimum credit score requirement
Some credit card issuers will refuse customers for secured cards if their credit scores are too low. the Open Sky® Secured Visa® credit card has no minimum score requirement, making it a great card for people with no credit or with very low credit. In addition to depositing a security deposit of at least $ 200, you will need to pay an annual fee of $ 35 to access this card. Keep this in mind before you apply.
Discover it® Secure Credit Card: Best Secure Card with Cash Back
Want to earn rewards as you increase your credit? the Discover it® secure credit card offers 2% cash back on gas stations and restaurants (up to $ 1,000 in combined spend per quarter, then 1%) and 1% on all other purchases. New cardholders can take advantage of Discover the Cashback Match program, which is 100% of the cash back you earn in your first year. Just like the Open Sky Secure Visa, you need a minimum security deposit of $ 200 to access this card, but you won’t have to pay an annual fee and you will get cash back on anything you buy.
When to switch 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 transfer you to an unsecured credit card after you’ve proven that you can use your secured credit card responsibly. If you have the secure Discover it credit card, for example, it’s possible to upgrade to an unsecured Discover card with just eight months of good payment behavior. When a credit issuer switches 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 will need to close your secure credit card before you can receive your security deposit and you may need to apply for an unsecured credit card on your own. Read the fine print before applying for a secured credit card to find out exactly what the rules are for refunding the security deposit and switching to an unsecured card.
If your credit card issuer doesn’t automatically consider you an unsecured credit card, how do you know when it’s time to apply for it on your own? Start by having at least six months of positive credit history under your belt. Check your credit score on a regular basis to ensure it is moving in the right direction and review your credit report to make sure all information is correct. If your credit history has improved, it may be worth asking for one of the best credit cards for people with bad credit—Or, based on your new credit score, one of the best credit cards for people with fair credit.
The bottom line
Creating credit with a secured credit card is an important step in getting your finances back on track. Use these tips to help you build a positive credit history, switch to an unsecured credit card, and progress to all the advantages that a good credit has to offer.