Learn How Secured Credit Cards Work And How They Can Help You Build Your Credit With Responsible Use
There are plenty of credit card options out there. But not all of them are available if you donât have an established credit historyâor if your credit is less than perfect. There are still options, though. One could be a secured credit card.
Secured credit cards can be a great tool to help you build good credit. But before applying, it may help to learn a little about how secured cards work. Keep reading to learn more about what it takes to get a secured card, how itâs different from other cards and a few potential benefits.
How To Upgrade To An Unsecured Credit Card
You probably dont want to keep a secured card forever for most people, secured credit cards are a bridge to bigger and better things. When you are able to upgrade, your next credit card should be a rewards card. If you have good credit and are able to pay your bill in full each month, passing up on a rewards card is like passing up on extra money, essentially. In addition to higher credit limits, youll have the luxury of earning cash back or travel points and access to exclusive perks like sign-up bonuses and 0% intro APR offers.
So how does upgrading your secured credit card work? Heres what a typical timeline looks like:
Oakstone Gold Secured Mastercard
- No minimum credit score requirements! We invite all credit types to apply! No processing or application fees!
- Includes Free Real-Time Access to Your Credit Score and Ongoing Credit Monitoring powered by Experian
- Helps strengthen your credit with responsible card use. Reports to three national bureaus
- Fast, easy application process. Choose your credit line and open your Personal Savings Deposit Account to secure your line.
- Nationwide Program though not yet available in NY, IA, AR, or WI
- Get a fresh start! A discharged bankruptcy still in your credit bureau file will not cause you to be declined.
- See website for additional Oakstone Gold Secured Mastercard® details
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When Closing An Account Can Hurt Your Credit Score
The way your credit score can drop when closing an account is if you dont open a new account to replace an old one. This happens because your amount of available credit decreases.
The amount of debt you carry is compared to how much credit is available to you so if you have a balance on your secured card, your credit score will suffer. Why? When you have a balance on any of your credit cards, its calculated as a percentage of your overall credit limit.
So having a $1,000 balance on a credit card when you only have $2,000 available on your combined cards hurts your score. But the same $1,000 balance actually looks reasonable and can even help your credit score if you have a credit limit of $5,000.
Its also wise not to close your oldest accounts as the length of credit history is also a factor in your credit score.
How Secured Cards Work
A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you’re required to make a deposit in order to receive a line of credit. The amount you deposit usually becomes your credit limit.
Deposits typically start at $200 and can range to upwards of $2,500. If you make a $200 security deposit, you’ll receive a $200 credit limit. If you want a bigger credit limit, you’ll need to deposit more money.
The amount you deposit acts as collateral if you default on payments, but it’s completely refundable in one of two ways: Pay off your balance in full and close your account, or upgrade to an unsecured card.
Secured cards offer many of the same benefits as traditional credit cards, but they are typically easier to qualify for if your credit history is poor or non-existent.
The one big difference, in addition to the required security deposit, is the interest rate. Secured cards usually offer all users one variable interest rate, say 24.99%, for example. Meanwhile, an unsecured card often features a range, say 13.99% to 24.99%. In most cases, the better your credit score the lower APR you’ll receive. Since secured cards often only have one, relatively high APR, it’s extremely important you always pay on time and in full to avoid interest charges.
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Open Sky Secured Visa Credit Card: Best Secured Card With No Minimum Credit Score Requirement
Some credit card issuers will turn people down for secured cards if their credit scores are too low. The Open Sky® Secured Visa® Credit Card has no minimum score requirement, making it an excellent card for people with no credit or very poor credit. In addition to putting down a security deposit of at least $200, youll need to pay an annual fee of $35 to access this cardso keep that in mind before you apply.
How Does Credit Card Billing Work
Use your credit card to pay for purchases. Each month, the financial institution that issued your credit card sends you a statement telling you how much you spent on your credit card, and the minimum amount you must pay. If you do not pay the balance shown on your statement in full, then any grace period that may apply to your purchase transactions will no longer apply and your purchases will be subject to interest charges. Cash Advances made on your Account are always subject to interest charges. These interest charges will then be added to your outstanding balance. Interest rates for credit cards are often higher than for other types of credit, such as loans or lines of credit. So its important to use credit cards carefully and pay the balance in full each month. But if you cannot pay the full balance amount, you must make the Minimum Payment by the Payment Due Date that shows on your statement.
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How To Use A Secured Credit Card
At Experian, one of our priorities is consumer credit and finance education. This post may contain links and references to one or more of our partners, but we provide an objective view to help you make the best decisions. For more information, see our .
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The best way to strengthen your credit score is to use credit responsibly. The challenge is that qualifying for a traditional credit card can prove tricky if you’ve got poor credit or a thin credit file. Secured credit cards, which tend to have looser eligibility requirements, offer a potential solution.
Secured cards work like regular credit cards, except that they require a refundable security deposit. The amount of your deposit typically determines your credit limit, and the card issuer can keep the deposit if you stop making payments on the card.
The main benefit of using a secured credit card is that it can help improve your credit score. If the card issuer reports your payment activity to at least one of the three major credit bureausand you pay your bill as expected each monthyour credit score can increase over time.
How Can A Secured Card Help Build Credit
A secured card can help you build credit in a number of ways, as long as the card issuer reports activity to the credit bureaus.
A credit card provides credit bureaus with information about how much credit you use and whether you repay what you owe. Thats why its important to try to pay your card on time and to make at least the minimum payment every time it shows lenders youre responsible. Those two factors weigh heavily in your credit scores.
Having an open credit line can also help boost your score by changing your . Increasing the total credit available to you while keeping your spending the same can help drive down your credit utilization ratio. If possible, try to keep your credit use ratio below 30%. Paying off your card in full every month can help you do that.
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Work Towards Your Own Secured Card Get The Self App To Start Building
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Capone Secured Mastercard 2699% Apr
- The Good: Deposits are $49, $99, or $200 for initial credit line of $200 based on credit worthiness, but you can deposit more before your account opens for a larger limit. Reports to all three credit bureaus, no annual fee, no penalty APR, unlimited access to credit score , and after 6 months of on-time payments, you can get a higher credit limit without paying an additional deposit.
- The Bad: Late fee of up to $40, but this or the APR wont matter if you pay off your balance monthly, on time. At this time, CapOne does not graduate accounts to unsecured cards, but you may receive a limit increase. Capital One.
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Pay Off Your Balance In Full Each Month
The best way to use a secured credit card is to do so responsibly. To avoid paying interest, pay off your balance in full each month. Doing so also keeps your credit utilization rate, or the amount of available credit you’re using, low, Griffin says.
“Your utilization rate, or balance-to-limit ratio, is the second most important factor in credit scores after payment history,” Griffin says. “The lower your utilization, the better, as it shows you’re not relying too heavily on your available credit.”
Because it’s important to show activity on your card, consider using the card for small purchases and pay them off that month. Or you can use your card to pay for a small, recurring bill, such as a streaming subscription service.
Building Your Credit Using Secured Credit Cards
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Building your credit can be difficult, especially if youre new to Canada or have previous remarks on your credit report like a bankruptcy. When you have a bad or no credit history, gaining access to different credit products to help you build your credit can be extremely difficult. Thats when a secured credit card can come in handy.
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How Can I Change A Secured Credit Card To An Unsecured Card
If you regularly meet your payments on your secured credit card, your credit score should gradually improve. You can check your credit score online at regular intervals so you know when you have a good chance of being approved for a regular credit card. Sometimes, your card issuer will do this for you and automatically convert your secured card to an unsecured card .
The amount of time this takes to happen varies greatly, but if your credit score is poor, then you should expect to make regular payments for a few months before you are approved for an unsecured credit card.
How A Secured Credit Card Works
Most credit cards are unsecured: There is nothing guaranteeing or securing your ability to pay off your accrued balance, which is basically money that you owe to the credit card company. Its contract with you has you agreeing to pay your balance in whole or in part each month, but youre not putting up any of your assets or income to back that promise. .
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How To Use A Secured Credit Card Responsibly
Using credit cards responsibly is the number one best way to build and improve your credit. Secured credit cards are a great way to establish credit if done properly. Learn how to use a secured credit card the right way.
Jackie LamSeptember 8, 2021
Have less-than-awesome credit? If this is the case, perhaps you avoid credit cards and loans altogether.
Why? Just like someone who has been burned in the dating scene, if you apply for a credit card, you may get rejected. And if your application is accepted, you may get stuck with unfavorable terms and rates.
But theres some good news. There are legit, relatively easy ways to build credit. One of those ways is to get a secured credit card.
In this guide, well explain what a secured card is, and why its super important to use it wisely. Well also outline the potential consequences if you dont use your secured credit card responsibly.
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Your First Card Is A Keeper
Now that you know all the student cards and secured card pros and cons its easier to know which one is the best for you. Keep in mind that there is no such thing as the best card, it will be the one that best fits your needs and goals.
Even if you want to graduate to a more grown-up card in the future, you may want to keep your first card open for a long time. Closing your oldest card can impact your length of credit history, which accounts for 15% of your FICO score.
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Capital One Platinum Secured Credit Card: Best Secured Credit Card For No Annual Fee
Overview: This cards no annual fee makes it a great starter card. Also, the no foreign transaction fee makes it a good card for overseas travel or making purchases on foreign sites.
Pros: The terms are fairly straightforward, and with responsible use, you could get a higher credit line in as soon as 6 months if you make your first 6 monthly payments on time.
Cons: The Capital One Platinum Secured Credit Card offers no sign-up bonus or ongoing rewards.
Read our full Capital One Platinum Secured Credit Card review.
How To Use A Secured Card Effectively
Although they require a deposit, secured credit cards are a powerful tool for rebuilding credit. Here’s how to use one most effectively:
Use the card sparingly, making only one or two small purchases every month
Pay your balance in full every month before the due date. When you pay in full, you won’t be charged interest. Interest rates on secured cards are generally higher than those on unsecured cards.
Keep an eye on your credit score over time when it has meaningfully improved, ask your issuer about upgrading to an unsecured card
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How Much Will A Secured Credit Card Raise Your Credit Scores
Exactly how much a secured credit credit card will help you raise your credit scores depends on your own unique circumstances. And those same factors that can affect how long it takes to improve your scores can affect how much your scores improve, too.
Keep in mind: A credit card wonât build credit or improve your credit scores for you. Itâs your responsible use of the card that can help you build credit.
As you work on building your credit, it may help to use a tool like to see where you stand. CreditWise gives you access to your free TransUnionÂ® credit report and weekly VantageScore 3.0 credit score anytime. And using it wonât hurt your scores.
A Guide To Secured Credit Cards
If your credit isnt its best or you are new to credit, your options can be limited. In fact, the New York Federal Reserve reports that in October 2020, 21.3% of consumers were rejected when applying for credit cards. But with a secured card, you can build your credit in a few months so that you can apply for a more rewarding unsecured card.
Secured cards require a refundable deposit that you are borrowing off of for your available credit limit. In many cases, they may be your only option. But they are a great way to build credit and to develop good payment habits.
We evaluated more than 200 secured credit cards using such criteria as: rates and fees, deposit amounts, ability to improve credit, customer service, and miscellaneous features and benefits. Below are our top picks for the best secured cards and further information to help you make your decision and improve your credit so you can qualify for even better offers.
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