Build Good Credit With a Secured Credit Card

by Ron Haynes

Life today isn’t easy without a credit card. Even if you intend to pay cash, you’ll need a credit card to rent a car, secure a hotel room, or make an airline reservation. They offer a lot more protections and security than most debit cards when you’re buying merchandise online, and although you don’t technically need one to qualify for a mortgage, using a credit card responsibly can mark you as a credit worthy risk when you want to buy a home. But what if you’ve never had credit? What if your credit needs to be repaired?

Build or repair your credit by responsibly using a secured credit card

If you’ve struggled with credit in the past or if you’ve damaged your credit with late payments, over-limit fees, or too many inquiries, you may not qualify for a regular credit card. If you find yourself in this situation, a secured or pre-paid credit card may be the only way to establish, or re-establish, good credit. You may have some questions about how a secured credit card works:

Where can you get a secured credit card?

What exactly IS a pre-paid or secured credit card?

A secured credit card is a credit account secured by a deposit. Should the bill go unpaid, the money in the account can be used to pay that debt. For example, if you deposit $350 into the account connected to the secured card, you can charge up to $350. You may be able to add extra deposits to the account and increase your limit or the bank may reward you for on-time payments and increase your credit limit without those additional deposits.

Who is eligible for a secured credit card?

It isn’t a walk in the park. Each credit issuer has different requirements for their applicants. Some will accept people with a recent bankruptcy, others will not. Some may require that the court discharge your bankruptcy before accepting an application. Some have a minimum credit score, while others may not. Either way, you’ll have to go through an application process.

What will my secured credit card limit be?

Generally, secured credit cards have limits between $300 and $500 but there are certain lenders who will start you off with $250 or even less. Your credit limit will be either

  • the amount of your deposit
  • a certain percentage above your deposit

How does the deposit work?

There are usually several options you can use for your deposit – a savings account, a money market account, or even a certificate of deposit (CD). Usually the interest rate you’ll earn isn’t that great and probably matches (at best) what you’d typically earn at a local bank. In other words, you won’t get rich on the interest your deposit earns.

Are there any fees associated with a secured credit card?

Though the fees on your secured card will usually be lower than fees charged on unsecured cards that are targeted toward those with poor credit, they still aren’t a “bargain” regarding the rates charged to customers. Usually those rates are in the high teens or even higher but if you’re practicing good credit habits and paying your bill in full each month, those rates aren’t important, are they?

Some issuers may have an activation fee or a monthly activity fee, but if you’re working to build or rebuild your credit report, you can look at those fees as the cost of building your credit. Fees can vary greatly from offer to offer so do your homework and shop around.

Make sure your secured card reports to all three credit bureaus

Always, always, always verify that your secured credit card issuer reports to the three major credit bureaus before wasting your time applying. The whole reason you’re using a secured card is to build your credit history. If the issuer doesn’t report, you’ve lost a MAJOR benefit.

One thing to also check is to insure that the issuer WON’T flag their report to the credit bureaus as a “secured card.” That flag could be a millstone around your neck since other creditors could suspect that you aren’t a worthy credit risk.

Signs your issuer is reporting to the credit bureaus

If you start getting additional secured card offers after making a couple of months worth of on-time payments, you’ll know your secured credit card issuer is reporting. Additionally, after three or four months of on-time payments, request your free credit report at www.annualcreditreport.com. Once you receive your report, make sure your credit card issuer is listed on it.

How long does my money have to be on deposit?

That’s a question you’ll need to ask your issuer. Some banks and issuers will keep your deposit for a few billing cycles, others will keep it longer, and still others will release it as your credit score increases.

How should I use a secured credit card?

The reason you’re using a secured credit card is to build a strong credit history, to prove you’re a responsible user of credit. You AREN’T using one to go into debt! Make small purchases that you can pay off each and every month and always pay on time. THAT’S how to build a strong credit file and the proper way to use a secured credit card.

Once you’ve rebuilt your credit with a secured credit card

If you’ve developed the discipline to responsibly use a secured credit card in a responsible way, you probably have the discipline to use an unsecured credit card. Use your old deposit to begin your own savings plan and take the training wheels off your credit bicycle.

After you’ve made 12 on-time payments on your secured credit card, should you decide to move on to an unsecured credit card, shop carefully. One of the best options is to use CreditCards.com and 
search their database of hundreds of different credit cards. One will probably suit your needs.

About the author

Ron Haynes has written 988 articles on The Wisdom Journal.


The founder and editor of The Wisdom Journal in 2007, Ron has worked in banking, distribution, retail, and upper management for companies ranging in size from small startups to multi-billion dollar corporations. He graduated Suma Cum Laude from a top MBA program and currently is a Human Resources and Management consultant, helping companies know how employees will behave in varying situations and what motivates them to action, assisting firms in identifying top talent, and coaching managers and employees on how to better communicate and make the workplace MUCH more enjoyable. If you'd like help in these areas, contact Ron using the contact form at the top of this page or at 870-761-7881.