How to use a secured credit card to build a credit history

Secured credit cards are a great option for people who are establishing their credit history for the first time. However, not all secured cards are created equal. If you're starting your search for a secured credit card and are looking to establish credit for the first time, here are a few key things to consider:

What is a secured credit card?

A secured credit card is a type of credit card that requires a security deposit or savings account collateral. To get a secured credit card, you need to provide a cash deposit—usually $200-$500—which usually matches your credit limit and will be held by the lender in case of late or missed payments.

You can't immediately withdraw your deposit, but your bank may refund it once you show a track record of responsible payments. You should read your cardmember agreement carefully, to understand all of the fees, charges, and any limitations attached to the card's use.

Can you use a secured credit card to build credit?

Secured credit cards may help build or establish your credit score if you make consistent on-time payments, avoid late fees and keep your balance low. Most secured credit cards will report your payment activity to the three credit reporting bureaus, Equifax^®, Experian™ and TransUnion^®. If you are using a secured credit card for the purpose of establishing or improving your credit score, be sure to confirm that the credit issuer will report your activity to the three credit reporting bureaus. Not all secured credit cards report to these agencies, so it's important to double-check this before committing to the card. If you use a secured credit card responsibly, you can build up a credit score over time and potentially upgrade to a traditional credit card with better financial terms and without the need of a deposit.

What is a secured credit card?

Like traditional credit cards, secured credit cards charge late fees in cases of missed payments and might have high interest rates as well as annual fees. Before applying for a card, it's key to compare interest rates between different secured credit cards. You may want to find a secured credit card that charges low annual fees or waives them altogether. Secured credit cards may also have a low credit limit to start with, but you may be able to expand your credit limit after a period of consistent on-time payments. Some secured credit cards may not report to the three credit reporting agencies, but you can confirm this with the credit card issuer before applying.

How can I help build my credit with a secured credit card?

You can help build your credit with a secured credit card by developing these habits:

• Make payments on time: On-time payments are one of the main things that will help you build a good credit score.
• Watch your credit limit: Credit score bureaus also closely watch how close you are to using up your credit limit. Try to keep the balance on your cards at less than 30 percent of your total credit limit.

Secured credit cards are specifically designed to help students and other people with no credit history start building a good credit score. They come with bigger restrictions than regular credit cards, but with responsible use they can help you build up your credit.

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