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Improve your financial future by building credit
Secured credit cards are a great option for those looking to establish their credit history and can be much easier to qualify for than unsecured cards. However, how to build credit with a secured credit card?
Stay tuned, and we’ll answer all your questions about secured cards and how you can build credit with them. Learn more about it in our full article! Let’s get started.
What is a secured credit card and how does it work?
A secured credit card is a type of card designed to help people build or rebuild credit. You need to provide a cash deposit to get a secured credit card. It usually matches your credit limit and will be held by the lender in case of late or missed payments.
With responsible use, this deposit can often be refunded once your bank sees that you have a good history of staying on top of your payments.
Security deposit amounts vary by lenders, so it’s important to read up on the fees, charges, and spending limits related to the account before you open one.
A secured credit card can also help improve your chances of getting approved for an unsecured line of credit. That is, as long as you keep up with regular payments and positive account usage.
How much will a secured credit card raise your credit score?
There is no exact figure for how much your credit score can go up after using this credit card option. After all, each person has a credit score and which was built differently.
However, nothing prevents you from reaching an excellent credit score level over time. Furthermore, to reach this level, you need to have good credit behavior and keep your payments up to date.
How long does it take to build credit using a secured credit card?
As with score growth, there is no exact value for the time it takes to improve this indicator. After all, time varies depending on your current credit score, your payments, and your card use.
However, moving from a poor or bad credit score to an excellent level can take a few years. Therefore, it is important to remain patient and not get discouraged, as constancy will change your records.
How to use a secured credit card to improve your credit score: 5 simple steps
Many people doubt how to build credit with a secured credit card. After all, the mechanisms used to calculate a credit score are not very clear to some.
However, the main function of these cards is to report their good use in purchases to the main credit agencies. You can gradually increase your credit score by using the card.
However, to follow a constant and regulated use, it is important to pay attention to some tips. We’ve created a simple guide to help you understand how a secured credit card will improve your score. Check out!
1) Choose the best-secured card option for your case
Secured credit cards are an effective tool for building credit. By making sure the card issuer reports your account activity to the three main credit bureaus, you can begin building or rebuilding your credit with responsible use.
Remember to research the deposit amount required to open the card, as minimums may be anywhere from $200-$500. Be careful not to get lured in by seemingly appealing offers with outrageous fees and high annual or monthly costs.
Choose one that gives a reasonable path towards upgrading it to an unsecured card, where you’ll receive your initial deposit back once qualified.
2) Make the initial deposit as soon as possible
Building good credit is critical to achieving financial success. A secured credit card is a great way to do this, but simply applying isn’t enough. You must pay the deposit quickly if you want the benefits of using it.
The card issuer will not open the account until the security deposit has been paid, and often there’s a set time frame for you to make the payment.
Failing to pay on time can decrease your credit score and result in losing out on all the potential benefits of having an active line of credit.
To get started, you’ll need at least $200-300 for your deposit, so it pays to plan and have that money ready when your application is approved.
3) Make payments on time
Establishing good credit is an essential part of achieving financial security. One useful way to build your credit is by responsibly utilizing a secured credit card, which starts with ensuring you make all payments on time.
Doing this will demonstrate your financial reliability to future lenders, which can help you get better interest rates on future loans.
Not only will consistently making payments on time establish a positive credit score, but it also enables you to enjoy stress-free experiences regarding managing your money.
So, start with developing the habit of making responsible payments on time with a secured credit card.
4) Watch your credit limit
Secured credit cards are an excellent way to demonstrate how responsible you are when it comes to how you manage your money. They enable you to start building a good credit score right away.
While showing how trustworthy and financially savvy you are, it is also important to watch your credit limit closely.
Fortunately, most credit bureaus show favoritism towards individuals who keep their balance on their cards at less than 30 percent of the total credit limit set by the provider.
This practice is an effective way to build your credit and demonstrate how fiscally conscious you are.
5) Monitor your finances and credit score
Developing a credit record by using a secured card is becoming increasingly important. Monitoring your progress by keeping an eye on your credit score will help you determine how effective what you are doing is.
Seeing an upward trend in your score is a great sign, meaning your hard work and dedication to building that history is paying off.
With improvements to your credit, you may become eligible to apply for an unsecured card, which can be a significant milestone in your financial journey. Don’t get discouraged, though, if you don’t notice any changes.
Getting access to free reports from the three major bureaus is a good place to start investigating further.