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.
When you’re new to credit or your credit score is low, a secured credit card can be one of the most useful tools for credit building.
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 much will a secured credit card raise my score?
It’s difficult to say how much or how quickly a secured credit card can raise your score. Everyone’s credit situation is unique.
For example, if you’re new to credit and building it from scratch, a secured credit card can quickly give you an excellent boost. On the other hand, if you’re rebuilding credit and have negative items on your credit report (such as late payments and defaults), the process will most likely be much slower.
Let me share a personal example of how I grew my credit with a secured credit card from fair to good in three years.
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. Credit card issuers weren’t exactly fighting for my business, but Capital One approved me for the Capital One Platinum Secured Credit Card – 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 used my secured card very cautiously. Originally, my credit limit was $200, although 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.
In March 2020, Capital One silently tripled my credit line from $500 to $1,500 – not bad, considering my initial deposit was only $200. I called Capital One and asked if I could graduate to an unsecured card, and the representative offered me a product change to the Capital One Quicksilver Cash Rewards Credit Card.
Fast forward to March 2021, and my credit score was more than 50 points higher than what it was three years prior.
Sure, there has been more to my credit rebuilding strategy than just one secured credit card. I used Experian Boost, took out a new car loan and added more cards to the mix. But it was my secured card that jump-started my credit.
How to build credit 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.
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 also gets matched.
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.
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.
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 or 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.