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5 ways a secured credit card can help rebuild your credit

Rebuilding credit can be easier with a secured credit card.

Secured credit cards are designed for people who are new to credit or need a second chance at using credit responsibly. These cards don’t offer the same features and perks as unsecured credit cards — they’re meant to be a stepping stone back to an unsecured card.

While you’ll need to put down a security deposit to act as collateral for your secured credit card, this is a small price to pay to begin rebuilding your credit score.

1. Secured cards are a quick first step.

Rebuilding your credit score can feel like a daunting task — and it’s hard to know where to start. If you have no credit, bad credit or a rocky financial past, many lenders will likely reject you for unsecured credit cards, loans and other forms of credit.

A secured credit card can be a crucial first step because some secured card providers don’t require credit checks, which means you won’t be subject to a soft or hard inquiry. As far as approval goes, you’ll likely be green-lighted for a card unless you’ve recently claimed bankruptcy or you have a history of constantly missing payments.

2. Most secured cards report to the credit bureaus.

The most significant way you can increase your credit score is through credit history reporting. This boils down to you making at least your minimum monthly payment on time.

Look for a secured card that reports your payments to the two largest credit bureaus: TransUnion and Equifax. When these bureaus see you’re responsibly using your credit card, they’ll reward you with a higher credit score.

Be sure to confirm with your provider that your spending and payment history will be reported, otherwise the card will do nothing for your credit history. You can check by either looking on its website or contacting the provider directly. Ideally, your lender will report to both credit bureaus every month.

3. They lower your credit utilization ratio.

After you’re approved for a secured credit card, you’ll find another quick win: Your credit utilization ratio should go down.

When you get your credit card, you’ll put down a security deposit — let’s say it’s $500. At that time, your available credit will be $500. If you haven’t yet purchased anything, your balance will be $0, which means your credit utilization for the card is 0%. If you spend $100 on your card, your ratio will then be 20%. Lenders like to see a ratio of 30% or less.

Credit utilization is so important that it makes up a large percentage of your credit score. The credit bureaus want to see you have a lot of available credit relative to your card balances. It implies that you’re not desperate for credit and that you’re a responsible borrower.

4. They increase your total number of credit accounts.

Just like your credit utilization ratio affects your credit score, so does your total number of open credit accounts. Credit bureaus generally like seeing more accounts because it indicates that more lenders find you creditworthy.

Opening a secured card can decrease your credit utilization and also increase the number of accounts you own. This doesn’t weigh significantly on your credit score, but it can lift your score by a few points.

5. Secured cards help you build better financial habits.

When you open a secured card, you put down a security deposit that serves as your monthly credit limit. Some people may see this as a disadvantage, but it can actually be an advantage. That’s because you can control the amount you deposit, thus setting your credit limit on your own terms.

Once you’ve done that, you can create solid financial habits within the boundaries you’ve set. For instance, if you have poor credit, you may have trouble controlling your spending. With a low credit limit, you can learn how to resist impulse spending.

What’s more, you can work on paying your balances on time, aided by the fact that your card payments aren’t overwhelmingly high. After you build your financial habits, you’ll be ready to graduate to an unsecured card with a higher credit limit and more perks.

Secured credit card comparison

Name Product Min. Required Deposit Purchase Interest Rate Cash Advance Rate Annual Fee
Refresh Financial Secured Card
$200
17.99%
N/A
$12.95 + $3/month
The Refresh Secured Card has no credit check, a low annual fee and guaranteed approval once you secure your card with anywhere from $200 - $10,000.
Home Trust Secured Visa (No Annual Fee)
$500
19.99%
19.99%
$0
The no annual fee Home Trust Secured card comes with a standard 19.99% purchase and cash advance rate. Apply with any credit score and start rebuilding your credit.
Home Trust Secured Visa (Low Rate & Monthly Fee)
$500
14.9%
19.8%
$60
Pay a monthly fee of $5 and get a low purchase interest rate of 14.90%.
Home Trust Secured Visa (Low Rate)
$500
14.9%
19.8%
$59
Rebuild your credit score and enjoy a low purchase interest rate of 14.90% and a cash advance rate of 19.80%.
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Who are secured credit cards good for?

Whether you need to build credit or learn how to use a credit card responsibly, a secured card can be a useful financial product for a handful of different people in different situations. Here are just a few situations where you might benefit from a secured card:

  • After bankruptcy. The best way to combat being denied after declaring bankruptcy is to apply for a secured credit card with no credit check.
  • If you’re a student. A secured card can be useful for a student as it can teach responsible spending habits and has a limited balance. Although a secured card can be helpful, there are plenty of unsecured student credit cards on the market too.
  • You’ve got poor credit. A great way to rebuild your credit is to use a secured credit card and make on-time payments and pay your balance off in full each month. Find out how to get access to your credit score here.
  • You’ve been the victim of identity theft. While this may not be your fault, traditional lenders may be unwilling to lend to you. In this case, apply for a secured credit card with no credit check and monitor your account frequently.
  • You want to build credit. If you have minimal credit history, a secured credit card can put you in a good position to build your score up.
  • You’re a first time credit card user. A secured card can be useful for a number of reasons. You can build credit, learn smart spending habits and teach yourself how to responsibly manage an account with your own money.

Bottom line

Having no or poor credit doesn’t mean you’re out of options for building your credit history. A secured credit card lets you take direct action to start supplementing and rebuilding your credit score while learning how to best use credit cards responsibly.

Compare secured credit cards to find the card that best suits your financial needs and spending habits. Provided you spend responsibly and pay your balance in full each month, you’ll be able to graduate to an unsecured card in no time.

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