Using a Secured Credit Card to Build Your Credit History

Starting Where You Are

Building credit can feel like a catch 22. You need good credit to get approved for loans and credit cards, but you need credit accounts to build your score in the first place. This challenge can be especially frustrating if you are trying to recover from past financial struggles or starting out with no credit history at all.

Some people in tough financial spots turn to options like an emergency title loan which can be a useful tool in certain circumstances. Having a strong credit history can open the door to a wider variety of borrowing options. One way to start that process is by using a secured credit card.

What Is a Secured Credit Card?

A secured credit card works a lot like a regular credit card, but with one important difference: you have to put down a cash deposit to open the account. This deposit usually becomes your credit limit. For example, if you deposit 300 dollars, your credit limit will be 300 dollars.

The card issuer holds your deposit as collateral in case you don’t pay your bill. Because the deposit reduces the lender’s risk, secured credit cards are often available to people with little or no credit history, or even poor credit. You get to use the card for purchases, make monthly payments, and build a positive credit history as long as you pay on time.

Why Secured Cards Help Build Credit

Secured credit cards report your payment history to the major credit bureaus, just like regular credit cards. Every on time payment helps build your credit history and improves your credit score over time. This makes secured cards a useful tool for people who need to establish or repair their credit.

The key is responsible use. Making your payments on time every month and keeping your balance low shows lenders that you can manage credit wisely. Over time, this positive history can help you qualify for unsecured credit cards and better loan options.

Converting to an Unsecured Card

One of the best features of many secured credit cards is that you may eventually be able to upgrade to an unsecured card. After several months of consistent, on time payments, some issuers will review your account and may offer to return your deposit and convert your card to a regular unsecured credit card.

This upgrade is a positive sign that your credit is improving. It also increases your available credit without adding a new account, which can further boost your credit score.

Other Steps to Build Credit Alongside a Secured Card

While a secured card can be a great starting point, it’s not the only tool you can use to build credit. Here are a few additional steps that can support your efforts: