Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
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.
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.
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.
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.
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.
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
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.
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.
Frequently asked questions
More guides on Finder
How to buy Solana (SOL) in 5 steps
Learn how to buy Solana (SOL) with this step-by-step guide and compare various supported cryptocurrency exchanges.
How to buy Litecoin (LTC) with a credit card
Learn how to buy Litecoin (LTC) with a credit card by following our step-by-step guide. Get started today.
10 ways to invest for social justice
Put your money where your mouth is by rethinking how you invest to support BIPOC, LGBTQ+ and other marginalized communities.
Investing in your 40s: 8 ways to prepare for retirement
How to invest for retirement: 8 ways to safeguard your portfolio.
Best credit cards
We’ve taken a look at some of the best credit cards in Canada and explained who they’re best suited to.
How to earn Bitcoin on everyday purchases
SPONSORED: Earning cashback and points on credit cards has been popular with Canadians for years, but there’s a new card reward emerging: Bitcoin cashback.
Spring Financial Personal Loan review
Secure a Spring Financial personal loan of up to $15,000 with a quick online application or phone call.
Mogo Bitcoin review
Load money into your account and buy and sell Bitcoin quickly and easily with the user-friendly Mogo Bitcoin app.
Easy Financial creditplus loan review
If you have bad credit or no credit history at all, Easy Financial’s creditplus loan helps you improve your credit score so you can secure a loan within months.
Easy Financial Unsecured Loan review
If traditional lenders aren’t an option, Easy Financial helps you with unsecured loans of up to $15,000.
Ask an Expert
You must be logged in to post a comment.