In 2019, the average FICO score among Americans was 703. That’s typically considered a good credit score and would qualify you for many potential credit card and loan options. But roughly 41% of people in the nation had a score below 700, with many falling below thresholds that might make credit cards and loans accessible.
If you’re one of those 41% and you want to improve your credit history and open more financial doors in the future, secured credit cards might be an option. Read on to find out how a secured credit card can help your credit score.
What Is a Secured Credit Card?
A secured credit card requires a security deposit to act as collateral. When you apply, you provide a security deposit—and that becomes your starting credit limit. Because your credit line is secured by funds you deposit, lenders can afford to approve individuals who might not otherwise be approved for a credit card. That makes it possible to get approved with a thin credit file, no credit, or even bad credit.
Most secured credit card companies require a minimum deposit of at least $200. Some let you make a deposit of several thousand dollars. After you show that you can manage the card responsibly—such as by paying your bill in a timely manner and not running up your credit balance—the lender may return your deposit or give you the option to upgrade to an unsecured credit card.
How Do Secured Credit Cards Help Credit?
Secured credit cards can help your credit because the lender typically reports to all three credit bureaus. If you make timely payments, those payments get reported as positive information in your credit file. Because timely payments are a huge part of your credit score—as much as 35% of it—this can be very important to building credit.
Another way secured credit cards can build credit is by adding to your credit mix. Another factor in our score calculation is having more than one type of account. Creditors like to see that you can handle revolving and installment accounts. If all you have right now—or have ever had—is a car loan or a personal loan, a secured credit card might be an easy way to increase your credit mix.
How to Build Credit with a Secured Credit Card
But secured credit cards aren’t a magic elixir for your credit score. You have to manage these accounts appropriately to get the benefits. Here are some tips for building credit with a secured credit card.
- Don’t apply randomly for credit cards. Every application could result in a hard inquiry on your credit report, bringing your score down further. Instead, do your research. Check your own credit, and consider what type of credit the lender is looking for before you apply. That increases your chances of getting approved the first time.
- Make sure the cardholder reports your payments. Surprisingly, credit cards don’t actually have to report your payments at all—so some will not report to any bureaus, while others will report to just one, two, or all three. Ideally, you want them to report to all three credit bureaus. That way, your timely payments can help build your profile at each agency.
- Make every payment on time. Failing to make a payment can result in a negative mark on your credit reports, which defeats the entire purpose of the card.
- Don’t max out your credit limit. Try to keep your utilization below 30%. That means if you have a credit limit of $1,000, keep your balance at $300 or lower. Your credit utilization—how much of your credit limit you use—impacts your credit score.
- Don’t expect your credit to improve immediately. It takes time to build your credit via any means.
Tools like our free Credit Report Card and our new product ExtraCredit can help you keep track of your credit score and the factors affecting it.
What Is the Best Secured Credit Card to Build Credit?
The best secured credit card is the one that’s right for you. Consider looking for cards that do the following:
- Have no annual fee or have a low annual fee of no more than $40. Otherwise, you might be paying a hefty cost to build your credit.
- Report to all three credit bureaus to maximize the credit-building benefits.
- Come with tools, such as payment reminders and apps, to help you manage your account and remember to make timely payments.
One option you might consider is the OpenSky Secured Visa. This card has a $35 annual fee, and there’s no credit check required, which means you can qualify for it with no credit. The minimum required security deposit is $200, and it reports to all three credit bureaus. Plus, there is a Facebook community for cardholders to share experience and insights, as well as credit tips and credit education resources.
OpenSky® Secured Visa® Credit Card
- No credit check to apply. Zero credit risk to apply!
- Looking to build or rebuild your credit? 2/3 of cardholders receive a 48+ point improvement after making 3 on-time payments
- Extend your $200 credit line by getting considered for an unsecured credit line increase after 6 months, no additional deposit required!
- Get free monthly access to your FICO score in our mobile application
- Build your credit history across 3 major credit reporting agencies: Experian, Equifax, and Transunion
- Add to your mobile wallet and make purchases using Apple Pay, Samsung Pay and Google Pay
- Fund your card with a low $200 refundable security deposit to get a $200 credit line
- Apply in less than 5 minutes with our mobile first application
- Choose the due date that fits your schedule with flexible payment dates
- Join over 1.2 million cardholders who’ve used OpenSky to build their credit
But this might not be the best card for you. Check out the entire list of secured credit cards at Credit.com to compare options for yourself and find a card you’re confident in applying for.
