How to rebuild your credit through secured credit cards

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How to rebuild your credit through secured credit cards

Is bad credit keeping you from accessing new credit? It's a vicious cycle, but for those of you who want to rebuild a credit rating that needs work or are building your credit history for the first time, getting a secured card might be your best (or only) option. We discuss when they could be useful and share some suggestions from our partners.

Is a secured credit card right for me?

The biggest difference between a secured and an unsecured credit card is that secured cards typically require a security deposit from the cardholder, which functions as cash collateral against you defaulting on your payments.

Secured credit cards are especially useful for consumers with credit that needs work or little to no credit history who are typically declined for unsecured credit cards. A secured card can almost guarantee approval by the lending institution because, in effect, you are the one taking on the financial risk through your security deposit.

Think of a secured card as your credit line "training wheels" that allow you the benefits of owning a credit card while giving you the opportunity to build a history of responsible credit use with on-time payments. The small credit limits and security deposit requirements are there to protect you from getting yourself into the poor payment history that may have plagued you in the past.

Secured card credit limits are often set at the amount of the security deposit or some percentage of it so that you cannot charge more than your security deposit can cover. Depending on your specific secured card, adding more to your security deposit enables you to access a higher credit limit, or if your payments are on-time and consistent, the credit card company may reward you by increasing your credit line without requiring additional deposits. Many secured cards increase the credit limit of your secured card after 6-12 months of responsible use and on-time payments.

If you can't break yourself from old habits and your monthly payments for credit charges are late or insufficient, the bank or card company will dip into your security deposit to foot the bill. Only good news here is that because of the small credit limit, you probably cannot get into significant debt.

Putting the secured card to work for you

A secured credit card is a great vehicle to build or rebuild your credit history, but still requires regular responsible use and diligence to earn good credit standing. Some guidelines to optimize your credit with secured credit cards:

  • Make payments on time - Always, always pay on time to put your best credit foot forward. Your card is intended to build positive credit history so don't bite off more than you can chew, don't charge purchases you can't afford to pay, and to show your serious commitment to being credit-worthy, never miss a payment.
  • Use your card, responsibly - To build up a credit history, you're going to need to use your secured credit card. Using it once a month for something simple like a tank of gas or a small grocery run is a great way to demonstrate responsible use while building payment history. Most importantly, pay on time when the bill comes - it's one of the largest influences on your credit score.

Secured credit cards can be a very powerful tool to start improving your credit today, but there are drawbacks. Secured cards come with fees of all kinds including annual membership fees, application fees, processing fees, deposit fees, higher interest rates fees, late payment fees, over limit fees, and cash advance fees.

The path to greater options

A secured credit card can be a significant stepping stone in managing your credit health. There are many secured cards out there, so shop wisely, read the fine print and - as always - use the card responsibly and pay on time.

Good credit is somewhere in your future, but improvements to your credit score don't happen overnight. You'll need to show months and possibly a couple years of solid credit history before you'll be ready to graduate to an unsecured credit card. But have hope; there is light at the end of the tunnel.

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All Comments

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1 Contribution
20 People Helped

Helpful to 20 out of 21 people

I have a brand new credit, meaning I havent had credit history for more than 6 months. I tried to open up credit cards but no one would take me because I had no history. I then applied for secured cards, which you initially add money too to set up the account. After 6 months or so with two secured cards, my credit had improved over 100 points, and now I am able to get a real credit card with a high limit!

1 Contribution
1 Person Helped

Helpful to 1 out of 1 people

My credit was pretty shaky, mainly due to the debt I incurred during a long battle with a serious medical condition.  I had six accounts in collections, ranging from a Verizon account that I had stopped paying on to unpaid insurance deductibles, cable bills, etc. and I found myself with a score of 550.  When I was well again I started paying off collections one at a time and making montly payments where I could, but it seemed that they were only able to make up so much of the deficit.  I'd see my score begin rising as accounts kept falling off, but I was aiming to have credit solid enough to purchase a home and I wasn't getting there fast enough.  The single best choice I made was getting a secured card.  Besides the amount of debt a person has, the current usage of credit is another critical aspect of what lenders will look at when approving a person for a loan.  

After only a few months, I got my score up high enough to finance a car! Now I have no accounts in collections, I pay my car payment and monthly credit card payment on time, and I always keep a low balance on my credit card.  My score is currently riding at a 642 and I'm very close to where I need to be to purchase a home! Credit Karma has been instrumental in helping me rebuild my life, and even though I have a long way to go I am extremely confident that I have the tools to succeed with this service.

1 Contribution
9 People Helped

Helpful to 9 out of 11 people

Does the amount of a secured card make a difference to improving scores if you payoff the balance each month? IE. will it matter if a person opens a $1500 card balance versus a $250 balance?

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1 Contribution
0 People Helped

You just want to use a small amount of your limit each month, like 10% or so.  That's what will impove your credit score.

1 Contribution
10 People Helped

Helpful to 10 out of 13 people

If I add an additional deposit to the secured card that I have had for a year, will that increase my credit score? 

1 Contribution
13 People Helped

Helpful to 13 out of 16 people

I opened a secured credit account in 2010 because of a very YOUNG credit history.  In the past, the banks allow you to "graduate" after a year of maintaining the account.  You can then withdraw the collateral and essentially have a regular unsecured credit card.  They sometimes even increase your credit limit depending on your history.

Well, I called my secured card issuer (Wells Fargo) and asked about the process of graduation.  They said that with the new Credit Reform Act, they have yet to allow people with secured credit cards to graduate.  I guess they're going to keep my collateral for as long as I want to keep the account open.  They told me to just apply for a regular credit card and if I'm approved I can close my secured credit line.  DUH!!!   So much for taking good care of your credit score.

1 Contribution
12 People Helped

Helpful to 12 out of 13 people

I have a credit score of 488. Pathetic I know, but it says my total debt is $53,000. Broken down, it says that:

My total credit card debt is $407

My total Student Loan Debt is $52,600

This is my debt. Over 99% Student Loans and four hundred dollars of credit card debt. I can't see me paying that enormous student loan debt off right away, but wish to increase my score. Is a secured card the best route? What about Kevin Trudeau's book on debt recovery? I've no bankruptcies, leans, repo's, child support, no nothing. This is overwhelming as these secured cards are so high in interest, especially Orchard Bank, etc. What do I do? I don't even know who to contact where my student loans are 'cause I went to school in the early 80's! Thanks..

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1 Contribution
4 People Helped
Helpful to 4 out of 6 people

I had my student loans forgiven. Look at your original promissory note. Some student loans that are older than 30 years can easily be forgiven. Go to and check it out. 

1 Contribution
5 People Helped

Helpful to 5 out of 6 people

I noticed that my credit score is 697 after filing chapter 7. I also got a loan to purchase a new 2011 car but the interest rate is higher. My question is am I on the right track and do I even need to get a secured credit card?

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3 Contributions
8 People Helped
Helpful to 8 out of 9 people

The secured credit card is another type of credit that will help improve your credit scoure. I have been reading a lot about improving credit scores, and a variety of credit is needed, not just one type. Get the secured credit card, use it a little each month, and pay it off each month in full. There is no need to carry a balance. If you do end up carrying a balance for a month or two, pay it off as quick as you can.

Top Contributor
12 Contributions
72 People Helped

Helpful to 6 out of 6 people

I have currently no credit history. CK says "Your personal information could not be validated. Please verify that it is correct." when I try to check the score here. Is it normal?

I have been approved for a credit card which will be arriving in a week. What score will a person have when he has got his credit history started?

1 Contribution
7 People Helped

Helpful to 7 out of 9 people

I recently checked my score and I have a 558 in Transunion usually thats the highest score out of the three so probably my score on equifax and experian is lower..I haven't checked my credit score until now I don't have any bankruptcies I had a credit card when I was younger and I was late but I paid it off,my auto account was 6 times over 30 days and 2 times over 60 days should I have a better job now and since I have been up to date I know I can take on a credit card but how can I get up to a 700 and start seeing good credit card offers and will a mortgage help I need some advice please help

Top Contributor
161 Contributions
254 People Helped

Helpful to 3 out of 3 people

i am a new resident in United States 11/08, so first thing i did was getting a bank of America secure CC with 500 deposit(29$ Annual fee), in 9 months they converted it to a regular CC with 1K limit, but unfortunately i did apply for some stuff without realizing how it can effect my credit so now i have a score of 690 with 15 hard queries in my file :-( so get a secure CC and put your phone bill in it and setup auto pay from your bank account to pay your CC, in one year you will be well above 700 score

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