It can feel like you’re in a maze when you try to build or rebuild your credit if you’ve had money problems in the past. One of the easiest and best ways to improve or build your credit is to get a secured credit card. This in-depth guide will show you five important ways to improve your credit score with a secured credit card. It will also use Google’s EEAT (Experience, Expertise, Authority, Trustworthiness) and SEO best practices to make sure the content is helpful and gets a good ranking.
Introduction
Credit scores let lenders, landlords, and even employers see how well you handle your money. Scores can range from 300 to 850. They look at your payment history, how much credit you use, how long you’ve had credit, what kinds of credit you have, and how many inquiries you’ve made in the past few months. If your score is 670 or higher, you usually get better loan terms, lower interest rates, and better credit card rewards. A low score, on the other hand, can make it harder to get a loan and make things more expensive.
A secured credit card can help people who don’t have good credit or any credit history get started or get back on track. You can get your deposit back. Unlike unsecured cards, issuers want collateral. This makes it less likely that something bad will happen and makes it easier to get approved. You can show that you use credit wisely, give the credit bureaus good information, and slowly rebuild or build your credit profile if you follow the rules.
This article will talk about:
- How to pick the best secured credit card
- Make sure to pay all of your bills on time and in full every month.
- Don’t use your credit card too often.
- Check your credit report and score on a regular basis.
- You can either get a card that isn’t secured or upgrade to one.
We’ll also talk about more tips, common mistakes, frequently asked questions, and reliable sources so you can be sure you know how to do it.
1. Pick the Right Secured Credit Card
1.1 Read the rules for making deposits.
To get a secured card, you have to pay a security deposit that is usually equal to your credit limit. You can put down between $200 and $2,500 or more. If you need to borrow more money, like in an emergency, it might be a good idea to make a bigger deposit. If not, start with the smallest amount you can afford and add to it as you go.
1.2 Look at the fees and APRs
Don’t just check the deposit:
- Some cards charge an annual fee of up to $50, while others don’t.
- Monthly or maintenance fees aren’t common, but they can add up.
- A lower APR is better if you have a balance. You won’t have to pay any interest if you pay in full.
1.3 Learn how credit reports work.
The issuer must tell all three major credit bureaus: Experian, Equifax, and TransUnion. If you don’t report on time, you won’t get credit for being responsible.
The Consumer Financial Protection Bureau says that secured cards can only help you improve your credit if you pay all of your bills on time and in full.
1.4 Find ways to improve
Some secured cards let you switch to an unsecured card after you’ve shown that you can use it responsibly, like by making all your payments on time for six months. This change might help your credit mix and get rid of the refund for the security deposit.
2. Pay the full amount on time How well you pay your bills is the most important thing that affects your credit score. It makes up 35% of your FICO® Score.
2.1 Set Up Automatic Payments
Set up automatic payments for at least the minimum amount to avoid late fees and missed payments that can stay on your report for up to seven years.
2.2 Try to Pay It All
If you pay off the full balance on your statement every month, you won’t have to pay interest. This shows that you know how to manage your money.
2.3 Make reminders to pay
If you can’t set up automatic payments, you can use your issuer’s mobile app or calendar to remind you.
2.4 Know when to talk to someone
When your statement closes, not when it is due, issuers tell you how your account is doing. If you pay before the due date, your balance will be zero.
3. Make smart use of your credit Your credit score is affected by how much credit you use compared to how much you have. This is how much of your credit you use.
3.1 How to Use Goals That Are Less Than 30%
You shouldn’t spend more than 30% of your credit limit. Don’t spend more than $90 before you pay if your secured card is worth $300.
3.2 Pay More Than Once a Month
If you need to use more than 30%, you might want to make payments in the middle of the month to lower the balance before it gets reported.
3.3 Ask for a higher credit limit
After six months of making your payments on time, ask your issuer to raise your limit and put some money down. You use less when the limit is higher.
3.4 Stay away Ending the Account
Your credit history, which is worth 15%, affects your score. Keeping old accounts open shows that they’ve been around for a while.
4. Check your credit report and score often.
Being careful helps you find fraud, mistakes, or identity theft more quickly.
4.1 Get free reports every year
You can get one free report from each bureau every year at AnnualCreditReport.com, as required by federal law.
4.2 Use Services to Keep an Eye on Your
Credit Karma and Experian are two credit card companies that let you check your score for free and let you know when there are hard inquiries or big changes.
4.3 Don’t agree with mistakes Right away
If you see mistakes like wrong balances, accounts that aren’t yours, or late payments that were reported wrong, you should file a dispute with the right bureau.
4.4 Learn about the different scores.
FICO and VantageScore are two examples of scoring models that can give you different numbers. Look at trends instead of exact numbers.
5. Get a new card or switch to one that doesn’t have a lock on it.
After six to twelve months of responsible use, many companies that issue secured cards will let you switch to an unsecured card.
5.1 Read the rules for graduating
Here are some things that people often need:
- Payments made on time for each billing cycle
- Less than 30% used
- No late payments for a long time
5.2 Ask for the Upgrade
To learn about your upgrade options, call customer service. If your request is approved, you will get your deposit back and your account history will stay the same.
5.3 Look at other deals that don’t need a security deposit.
You might be able to get cards that give you these things if your score goes up:
- Rewards like cash back, travel points, and more
- There is no interest for the first few months.
- Lower APRs that last longer
5.4 Keep it up!
To raise your score even more, pay your bills on time and use your unsecured card wisely.
More ways to get the most out of your money:
- Use it to buy things you need to do every day. You can pay your bills or subscriptions right away with your secure card.
- Don’t ask for cash advances. They charge a lot of fees and interest, and they don’t show up as regular purchases.
- To keep the account active, use the card to buy small things that cost between $5 and $10 every so often.
- Get a mix of credit types: When you’re ready, get an installment loan, such as a credit-builder loan or an auto loan. This will show that you can handle different kinds of credit.
- Make sure you follow the rules about credit. The Fair Credit Reporting Act (FCRA) is one law that protects your rights. You can fight mistakes if you know what they are.
Frequently asked questions (FAQs)
1. What is the lowest credit score you can have and still get a card with a guarantee?
You don’t have to do much to get a card that is safe. You can usually still get a loan even if you don’t have a credit score or have had trouble in the past. This is because the lender has less to lose when they have a deposit.
2. How long will it take for my credit score to go up if I use a secured card?
Everyone gets better at a different rate. After three to six months of making regular, on-time payments and not using their credit cards too much, some people see that their scores go up. It could take 12 to 18 months to fix a bigger problem.
3. Will getting a secured card hurt my credit rating?
A hard inquiry on your application can lower your score by 3 to 5 points for a short time. Most of the time, people make up for this by paying on time.
4. Is it possible to use a secured card outside of the US?
Most secured cards work like regular Visa®, Mastercard®, or Discover® cards and can be used anywhere in the world. Before you leave, make sure you know how much it will cost to send money to other countries.
5. What will happen if I don’t pay my secured card on time?
If you don’t pay on time, you might have to pay a fee of $25 to $39. It could be reported as late if you don’t pay for more than 30 days. This could hurt your credit score. Call your issuer right away if you miss a payment to find out what to do.
6. How do I get my money back?
If you switch to an unsecured card or close your account with no money in it, your issuer will usually send you a check or statement credit within 2 to 6 billing cycles.
In the end
A secured credit card is a strong but not very common way to improve or build your credit. You can improve your credit score and get better financial opportunities by picking the right card, making all of your payments on time, keeping an eye on your credit, and eventually switching to an unsecured card. Always set up automatic payments, quickly dispute any mistakes, and keep your accounts in good shape. If you work hard and are patient, you can pay off your debt with your secured card.
References
- Consumer Financial Protection Bureau. “Secured Credit Cards.” CFPB. https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/credit-building/secured-credit-cards/
- MyFICO. “FICO® Score Factors.” https://www.myfico.com/credit-education/fico-score/factors
- Experian. “What Impact Does Credit Utilization Have on Credit Scores?” https://www.experian.com/blogs/ask-experian/what-impact-does-credit-utilization-have-on-credit-scores/
- AnnualCreditReport.com. “Free Credit Reports.” https://www.annualcreditreport.com
- Federal Trade Commission. “Credit Reports and Scores.” https://www.ftc.gov/credit
