How a Secured Card May Help Improve Your Credit

One way to improve your credit is to open a credit card account and keep it in good standing, building a history of on-time payments. But if you have bad credit, it can be nearly impossible to get your hands on a new card.

The exception can be a secured credit card, which requires a refundable security deposit. The deposit, which the issuer will keep to cover your balance if you become delinquent on payments, means that people with lower credit scores, or no credit scores at all, can get a credit card.

Nevertheless, simply having a secured credit card will not improve your credit. Here are some tips that will help you use a secured card to improve your credit:

Choose the Size of Your Deposit

In most cases, your credit line will equal the amount of your security deposit. You may want to consider submitting as large a deposit as you can afford because having a larger credit line will afford you more purchasing power.

 
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Remember, a Secured Credit Card Is Not a Prepaid Card

Because you must provide a deposit before you are approved for a secured credit card, some people confuse secured credit cards with prepaid cards. Yet, that’s far from the case. As with all credit cards, you will be billed monthly for the charges you accrue, and you must make at least a minimum monthly payment on that balance. And if you choose to carry a balance, you will incur interest.

Make Frequent Payments

If building credit is your goal, it’s wise to use the card for small purchases and pay them off in full each month. Drawing on a large portion of your available credit could negatively impact your credit score.

Set Up Payment Alerts and Pay On Time

The key to using a secured credit card to improve your credit is to maintain a strong record of on-time payments. Thankfully, most secured card accounts offer tools to help you make your payments on-time. For example, you can set up automatic payments each month, and you can configure text, email or mobile app payment alerts.

With responsible use of a secured credit card, cardholders may be able to transition to a traditional, unsecured card. 1 And when you do, there are two things to celebrate: You’ve made moves to rebuild your credit, and that deposit is back in your pocket where it belongs.

 

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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