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5 ways a secured credit card can help rebuild your credit

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Rebuilding your credit can be a long journey — but it could 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. You need to put down a security deposit to get a card, but you’ll get a valuable tool to help you attain the credit score you want.

Here are five ways that a secured credit card could help you rebuild your credit.

Green Dot primor® Mastercard® Gold Secured Credit Card

Our Pick: Green Dot primor® Mastercard® Gold Secured Credit Card

If you have low or no credit, this card offers easy-to-meet eligibility criteria — with no fees or credit check required.

  • Annual Fee: $49
  • Interest Free Days: 25
  • APR: 9.99% fixed

    1. Secured cards are a quick first step.

    Rebuilding your credit score can feel like a daunting challenge as it can be dizzying deciding 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. Also, you’ll benefit from the absence of the credit check because your credit history 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.

    2. 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.
    Secured credit cards that report to all three credit bureaus

    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. 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.

    4. 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.

    5. 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.

    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 you need to build your credit or learn how to use a credit card responsibly, a secured credit card can be the answer. Secured credit cards can directly benefit people in many different situations:

    • 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.
    • 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.

    Compare secured credit cards

    Rates last updated June 19th, 2018
    Name Product Product Description APR for Purchases ( Purchase Rate ) Bonus Points Interest Free Period
    Green Dot primor® Mastercard® Gold Secured Credit Card
    Low fixed interest rates with no penalty rate.
    9.99% fixed
    Up to 25 days
    Apply now Read review
    Platinum Prestige MasterCard® Secured Credit Card
    You can increase your credit limit by adding funds to the initial deposit.
    9.99% variable
    Up to 25 days
    Apply now Read review
    OpenSky® Secured Visa® Credit Card
    A secured Visa® credit card that helps you build your credit quickly.
    18.64% variable
    Up to 25 days
    Apply now Read review
     Applied Bank® Secured Visa® Gold Preferred® Credit Card
    This secured card can help you rebuild your credit with an initial deposit of $200 to $1,000.
    9.99% fixed
    0 interest free days
    Apply now Read review
    Platinum Elite MasterCard® Secured Credit Card
    With just a security deposit and 19.99% variable APR, start building or rebuilding your credit history.
    19.99% variable
    Up to 25 days
    Apply now Read review
    UNITY Visa® Secured Credit Card
    Borrow up to $10000 and get your credit score back on track.
    17.99% fixed
    Up to 25 days
    Apply now Read review
    SDFCU Savings Secured Visa Platinum Card
    Created to help you establish or rebuild credit.
    13.49% variable
    Up to 21 days
    SKYPASS Visa® Secured Card
    Earn SKYPASS miles while building your credit history in the United States.
    17.99% variable
    5,000 bonus points
    Up to 24 days
    First Latitude Platinum MasterCard® Secured Credit Card
    First Latitude Platinum MasterCard® Secured Credit Card
    Enjoy no annual fees while building your credit
    25.99% variable
    Up to 25 days
    Apply now

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    Kevin Joey Chen

    Kevin Chen is a world-travelin', copy-writin', Game of Thrones-watchin' credit cards writer for finder.com. When he's not crunching the numbers on bonus points and comparing APRs, you can find him flying around the world in search of the perfect beer.

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