How to rebuild your credit with secured credit cards | finder.com

5 ways a secured credit card can help rebuild your credit

Rebuilding credit can be easier with a secured credit card.

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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, but they’re meant to be stepping stones. You’ll need to put down a security deposit to get such a card — a valuable tool to help you attain the credit score you want.

Secured cards are a quick first step.

Rebuilding your credit score can feel daunting and it’s hard to know where to start. It doesn’t help that many lenders are reluctant to extend you credit.

A secured credit card can be a crucial first step because these cards typically don’t require credit checks, and 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 severely missing payments.

Most secured cards reports to 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 payments on time.

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

Be sure to confirm with your lender 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 lender directly. Ideally, your lender will report to all three bureaus every month.

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. You probably won’t use that credit, because you haven’t yet purchased anything. Because you have a $0 balance, your credit utilization for the card is 0%.

Credit utilization is so important that it makes up 30% 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.

They increase your total number of credit accounts.

Just like your 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 provide a slight bump.

Secured cards help you build better financial habits.

When you open a secured card, you put down a security deposit that’s equal to your credit limit. Some people may see this as a disadvantage, but it can actually be a plus. 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.

And 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 obtain unsecured cards with higher credit limits.

Compare secured credit cards

Name Product Filter values Purchase APR Annual fee Recommended minimum credit score
26.99% variable
$0
300
Get access to a higher credit line after making your first 5 monthly payments on time.
19.64% variable
$35
300
A secured Visa® credit card that helps you build your credit quickly.
9.99% fixed
$48
300
This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
20.74% variable
$29
300
Build your credit with all three major credit bureaus.
13.99% fixed
$39
300
Open a personal savings deposit account to secure a credit line from $200 to $5,000.

Compare up to 4 providers

Who are secured credit cards good for?

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

  • Bankrupt. The best way to combat being denied after declaring bankruptcy is to apply for a secured credit card with no credit check.
  • Student. A secured card can be useful for a student as it can teach responsible spending habits and has a limited balance.
  • Poor credit. A great way to rebuild your credit is to use a secured credit card and make on-time payments and clear your balance each month. Learn more about how to determine your credit score.
  • 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.
  • Building credit. If you have minimal credit history, a secured credit card can put you in a good position to start pushing your credit score up the hill.
  • First time credit card user. A secured card in this case 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 history doesn’t mean you don’t have options for building your credit. 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 learn more and find the card that best suits your financial needs. Provided you spend responsibly and pay your balance in full each month, you’ll be able to graduate to an unsecured card before long.

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