Five Tips to Using A Secured Credit Card Wisely

Five Steps To Using A Secured Credit Card Wisely Infograph

Five Tips to Using A Secured Credit Card Wisely

Your secured credit card has arrived, and you’re itching to begin building good credit. Before you do, read on for tips on how to use it effectively.

If you have little or no credit—or just plain poor credit—buying a house or a car, or applying for an apartment, can seem like a monumental task.

The good news? By using a secured credit card, which uses money you place in a security deposit account as collateral, you can build your credit in several meaningful ways*—as long as you follow a few rules.

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1.Use for Small Purchases You Can Pay Off Each Month

The point of using a secured card is to show your ability to responsibly charge and then pay off your balance. To do this, make a few purchases each month and pay your bill in full. By not carrying a balance, you not only avoid paying interest, but are using a time-tested strategy for building good credit—35% of your credit score is built on your ability to pay your bill on time.1

2.Pay on Time, and More Than the Minimum

While making your minimum payment is essential to a healthy credit score, upping that payment each month has added benefits. Among them: not having to worry about maxing out your card, which shows that you aren’t able to properly manage your money, and reducing your credit utilization ratio, or the amount you owe compared to your credit limit. Both are factors that affect your credit score.2

3. Make Multiple Payments

Making more than one monthly payment keeps your balance continually low. This is important because even if you pay in full each month, you can’t be sure when your credit card issuer will send your report to the three credit agencies, and a large balance reduces your overall credit, which negatively affects your credit score. You may also choose to send a payment after a heftier-than-normal purchase.3

4. Set Payment Alerts

Even the most organized person misses a payment now and then. But when you are trying to build good credit, that’s one time too many. Avoid this scenario with payment alerts that remind you of your bill’s upcoming due date. You may choose to set up a “Payment Due” alert with your issuer, and be texted, or manually put together a monthly “alarm” that notifies you a week before your bill is due.4

5. Enroll in Auto-Pay

Still concerned about making your payment on time? Perhaps the easiest plan is to enroll in auto-pay, which allows your issuer to automatically deduct the monthly balance from your bank account so you don’t have to keep track of bills.5

1. http://www.thesimpledollar.com/how-to-build-credit/

2. http://www.nerdwallet.com/blog/credit-cards/credit-score/paying-more-minimum-on-your-credit-card/

3. http://www.creditcards.com/credit-card-news/multiple-payments-higher-credit_score-1294.php

4. http://www.creditcards.com/credit-card-news/credit-card-alerts-cellphone-1273.php

5. http://www.nerdwallet.com/blog/credit-cards/automate-credit-card-payments/

*: Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly.  Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit. Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly.  Late payments, delinquencies or other derogatory activity with your credit card accounts and loans may adversely impact your ability to build credit.

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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