If you don’t have much of a credit background or a low credit score, it might be hard for you to get a credit card.
Don’t worry, because secured credit cards are made for people in your position.
These cards need a security deposit, and if you pay on time, they can help you build your credit past.
In this comprehensive guide, we’ll explore the world of secured credit cards, recommend top options, and discuss alternatives for building credit.
We’ll also talk about a real-life example of someone who used a secured credit card to build their credit history.
1. Secured credit cards are a good way to build credit.
Let’s look more closely at protected credit cards and how they can help you build your credit history:
How secured credit cards work
Secured credit cards are backed by a security deposit, which decides how much credit you can use.
This deposit is used as security in case you can’t pay back the loan.
As you use the card and make payments on time, your payment information is sent to the major credit bureaus, helping you build credit.
Why secured credit cards are a good idea
People with little or no credit history or low credit scores can benefit in several ways from secured credit cards:
Easier to get: The requirements for getting approved for a protected credit card are less strict than for an unsecured credit card.
Building credit: If you pay your bills on time and use credit wisely, your credit score will go up.
Going from Secured to Unsecured Cards: If you use your credit card responsibly over time, you may be able to get an unsecured card with better points and perks.
Establishing Credit from Scratch: Jane, a recent college graduate, had never had a credit card or loan in her name, resulting in no credit history.
To establish credit, Jane decided to apply for the Discover it® Secured card.
She made a $200 security deposit and began using the card for everyday purchases, paying her balance in full each month.
After a year of responsible credit card use, her credit score had increased significantly, and she was able to qualify for an unsecured credit card with better rewards.
2. Top Secured Credit Cards to Consider
Here are some of the best protected credit cards that can help you build your credit:
A. Secured Discover it®
The Discover it® Secured card gives 2% cash back at gas stations and restaurants (up to $1,000 in total purchases per quarter) and 1% cash back on all other purchases.
The security payment is at least $200, and there is no fee every year.
B. Capital One Platinum Secured
With a $49, $99, or $200 security fee, you can get a $200 credit limit on the Capital One Platinum Secured card. This depends on how good your credit is.
There is no annual fee, and if you pay on time for six months, you may be able to get a bigger credit limit.
C. Secured Visa® credit card from OpenSky®
There is no credit check for the OpenSky® Secured Visa® Credit Card, which makes it perfect for people with bad credit or no credit background.
The security payment is at least $200, and there is a $35 fee every year.
3. How To Use a Secured Card to Build Credit
Meet Sarah. She just finished college and had a hard time getting a credit card because she didn’t have much of a credit background.
She chose to apply for the Discover it® Secured card after looking into her choices.
Her first credit limit was set by the $200 she put down as a security fee.
Sarah used her protected credit card wisely over the next 12 months.
She paid on time and didn’t use too much of her credit.
After a year of good behavior, Discover looked at her account and chose to return her security deposit. This turned her credit card into one that didn’t require a deposit.
Sarah’s credit score went up a lot over the course of a year because she used her protected credit card in a smart way.
She can now get credit cards that don’t require a credit check and have better points and perks.
4. Rebuilding Credit after Financial Hardship
Michael had a poor credit score due to past financial struggles, including missed payments and high credit card balances.
Determined to improve his credit, Michael applied for the Capital One Platinum Secured card.
With a $200 security deposit, he received a credit limit of $200.
Over time, Michael made on-time payments and kept his balance low, leading to an increased credit limit and a gradually improving credit score.
After two years, he qualified for an unsecured credit card with a lower interest rate and better rewards.
5. Fresh Start: Building Credit after Bankruptcy
Following a bankruptcy, Sophia’s credit score took a significant hit.
Eager to rebuild her credit, she applied for the OpenSky® Secured Visa® Credit Card.
With a $300 security deposit, she received a credit limit of $300. Sophia used the card responsibly for her monthly expenses and paid the balance in full each month.
As her on-time payments were reported to the credit bureaus, her credit score began to improve.
After three years of diligent credit card use, she was able to qualify for an unsecured credit card and continue rebuilding her credit.
6. Alternative Options for Building Credit
There are other ways to build credit than through secured credit cards.
Here are some other ideas to think about:
A. Credit Cards from stores
Most store credit cards have easier-to-meet standards for approval, making them easier to get.
They usually have higher interest rates and smaller credit limits, though.
Use these cards with care and pay off the full amount every month.
B. Credit Builder Loans
By making regular loan payments, a credit builder loan is meant to help you build your credit.
The money you borrow is put into a bank account until you pay back the loan.
Then you can get the money.
This way, you can show that you are responsible with money and raise your credit score.
C. Authorized User
You can build your credit by becoming an authorized user on someone else’s credit card, as long as the main cardholder uses the card properly.
Keep in mind that bad things you do, like paying your bills late, can also hurt your credit score.
7. Building Credit with the Right Strategy
People with little or no credit history or low credit scores can get access to secured credit cards, which can help them build or fix their credit.
By picking the right card and using it wisely, you can raise your credit score and eventually get unsecured credit cards with better rewards and perks.
A secured credit card can be a powerful tool on your way to financial security, whether you’re building credit for the first time, getting back on your feet after hard times, or starting over after bankruptcy.
