How to Build Credit with a Secured Credit Card


“The only things certain in life are death and taxes.” Well, that might have been true in Benjamin Franklin’s day, but in the 21st century, you might as well add credit cards to that list. Some places, like hotels and car rental agencies, require a credit card, even if you plan on paying cash. However, if you’re new to credit or have to rebuild your credit after a major life event, like a divorce or job loss, you may not be eligible for traditional credit cards but you may be able to acquire a secured credit card instead.

1. What is a secured credit card?

A secured credit card is similar to a debit card but instead of being tied to your checking account, it’s tied instead to a cash deposit you’ve made to “secure” the card. If you put $500 on the secured card, you have a $500 credit limit. So why go with a secured card? Because unlike debit cards, secured cards report to the credit bureaus, so on-time payments and good behavior will help you build your credit score. After a while, if you manage your account responsibly, your credit line may increase automatically without additional deposits.

2. Where can I get a secured credit card?

About half of the nation’s credit unions offer secured cards, so if you’re a member of a union, that’s a good place to start. One drawback with credit unions is that many only report to one credit bureau and if you’re looking to establish or rebuild your credit, you’ll want to make sure the card is reported to all three credit bureaus. If you’re not a member or your union doesn’t offer one, check out CreditSesame’s list of secured credit cards.

3. How much will a secured card cost me?

As with any credit card it pays to read the fine print. Annual fees, application fees, and monthly charges can eat up your entire balance, so make sure you shop around to find the best deal. Also, some things, like the application fee, can often be negotiable… so, negotiate.

4. How much is the normal deposit?

Secured credit cards normally require an initial deposit in the range of $200-$2,000. This will be your credit limit, and over time, you may build unsecured credit on top of that.

5. Do all secured cards report to all three credit bureaus?

Having a credit card goes far beyond being able to buy shoes online. The most important part is that you’re building credit, and this can only be done if the issuer is reporting your on-time payments and other factors to the credit reporting bureaus. Some will not report, some will only report to one, and others send your information to all three. If you start receiving mailers from other credit cards after several payments, this is an indicator that they do report; however, it’s best to read carefully through the terms and conditions – or simply ask the issuer up front –and choose a card that does report.

6. How long will it take me to qualify for a regular credit card?

If you manage your new secured credit card impeccably, the credit card issuer will want to keep you as a customer. Typically after a year of good credit card management, the issuer will automatically initiate your move to unsecured credit. If after a year your issuer does not automatically upgrade your account to a traditional unsecured credit account, give them a call and ask them to do so.

7. What happens to the deposit?

Whatever money you put down as a deposit gets put into an account of your choice, usually a savings account, money market or certificate of deposit. You will earn the same amount of interest on this deposit as you would if you had put it in a normal bank account. After you close your secured credit card, the deposit will typically be held for a couple of billing cycles to cover any stray charges. Ask the issuer for exact time periods.

8. What are the best ways to use a secured card to build credit?

Just like with an unsecured credit card, you’ll want to pay on time and keep your revolving utilization – the proportion of your balance in relation to the credit limit – as low as possible. Using the card regularly and paying in full will also show that you are a good credit risk. However, advisors warn to shed your secured credit card as soon as possible for unsecured credit. Even though secured cards may seem safer and encourage savings, because of their higher annual fees and interest rates, an unsecured card will be better in the long run. So, use the secured credit card as a stepping stone to build credit and learn responsibility, then move on.