I used a secured credit card to get my credit up from the lowest point it’d been. Here’s how you can do the same.
Sure, it’s not glamorous. Most of the time, it won’t offer rewards, and a high credit limit will require quite an investment. However, these seemingly unimpressive credit cards can make a world of difference for your credit.
A few years ago, I drove my credit into a ditch. My secured credit card got me out of it. Read on to learn how it happened and how you can increase your score with a secured credit card.
How a secured card became a lifeline for my credit
Back in 2018, my credit was in a sad place. I’d defaulted on two credit cards, had some minor collections spoiling the picture and only one paid off auto loan to keep my score from sliding all the way down to the poor rating.
As soon as I saw some light at the end of the tunnel of my financial struggles, I decided it was time to work on my credit. Credit card issuers weren’t exactly fighting for my business, but Capital One approved me for the Secured Mastercard® from Capital One – and so my road back to good credit began.
It wasn’t fast but my credit score was improving. I had some of the collections removed when I paid them off, thanks to the collectors’ courtesy, and by summer 2019 my credit increased from around 620 to 640.
I took out another car loan – not to improve my credit but because my old Mustang was all but falling apart and deserved a more caring driver than I could afford to be. Still, my timely payments might have benefited my score.
As for my secured card, I was using it very cautiously. Originally, my credit limit was $200, and Capital One increased it to $500 after six on-time payments. I mostly put minor charges on the card here and there and paid them off right away to keep my credit utilization low.
My credit score was happy.
From a secured card to good credit
After I’d bought a car, my credit was climbing up, mainly thanks to using Experian Boost multiple times. But that doesn’t mean my secured card stopped playing a role in my credit building.
In March 2020, Capital One silently tripled my credit line from $500 to $1,500 – not bad, considering my initial deposit was only $200. A couple of months later, even though my credit score was still fair, I noticed the issuer started sending me offers to apply for the Capital One Quicksilver Cash Rewards Credit Card.
Rewards credit cards typically require a good to excellent credit score but I was curious and hopeful. I called Capital One and asked if I could graduate to an unsecured card, and the representative offered me to product change to the Quicksilver. It was my first rewards credit card, and I was excited.
Fast forward one more year, and I have four credit cards, including some of the best cards like the American Express® Gold Card and Discover it® Cash Back. My credit score is more than 50 points higher than what it was three years ago, and I’ve refinanced my car loan at half the interest rate.
Sure, there has been more to my credit rebuilding strategy than just one secured credit card, but it was the crucial first step. My secured card jump-started my credit.
How to increase your credit score with a secured credit card
Whether you’re starting to build your credit from scratch or, like myself, trying to fix it after a series of credit mistakes, a secured credit card can offer help.
Here’s what you can do to use it for your credit’s benefit.
1. Find a good secured credit card
Like any type of credit card, secured credit cards aren’t created equal. Pay attention to terms and fees. There’s no reason for a secured card to charge an annual fee, and some cards will also try to push hidden fees on you. Look for a card that will cost you only a security deposit.
My personal favorite secured credit card is the Discover it® Secured Credit Card. It’s the unicorn of secured cards since it offers cash back rewards: 2% back at gas stations and restaurants (up to $1,000 in purchases per quarter) and 1% on everything else. All the cash back you earn in the first year with the card gets matched, according to Discover’s generous ways.
2. Practice good credit card habits
A secured card offers a chance to demonstrate responsible credit behavior. Do so by always paying on time and using less than 30% of your credit line for good credit utilization. For example, if your credit limit is $300, avoid having a card balance over $90 at any time. Paying in full multiple times a month can help you keep your balance under control.
The best practice is never to let the balance roll over to the next month. Not only will this ensure good credit utilization, it will also allow you to avoid expensive interest charges and credit card debt.
3. Ask for a product change
After your credit score has increased, it may be a good idea to call the issuer and ask for a product change. The issuer may be willing to upgrade you to an unsecured version of the card or a different card altogether. It may be possible even if your credit isn’t good yet, but you’ve been consistently showing good credit behavior for a year or two. Issuer loyalty often pays off.
4. Keep the card open
Even if you haven’t graduated on to a better card, keep your secured card open after it’s done its job. You may have more exciting cards now, and your credit may be good or excellent but don’t give up on your old secured card (unless it charges fees). You can use it for minor charges, like your Netflix subscription, to keep it active.
Closing a credit card isn’t good for your credit, since it could negatively impact your credit utilization and lower the average age of your accounts. I’d suggest waiting a few years before closing your old card to soften the blow.
It’s hard to tell how much a secured credit card will increase your credit, and how long it will take to build credit using this type of card. There are many factors at play, such as any negative information on your credit report and other types of debt you may currently have.
Still, a secured credit card can be a game-changer. Unexciting as it may seem, it can be a lifeline for poor credit or the first step for credit beginners.