Maybe you've trashed your credit. Maybe you've never built credit at all. Either way, a secured credit card is an excellent way, when managed responsibly, to start building it up.
Secured cards are used by many people - some with poor credit, bad credit and even no credit, and others who have good credit but who like the features that secured cards offer.
It's easy to get started. Follow these four steps:
1. Get your credit score. Secured cards aren't hard to qualify for, but you can fine-tune the process to help avoid rejection. Find out your credit score so that you apply only for cards you're more likely to qualify for. Use Credit.com's free Credit Report Card to receive two free credit scores, one from Experian, a major credit reporting agency, and another using VantageScore 3.0, a scoring system developed by the three major credit reporting agencies.
2. Shop. Using Credit.com's credit card search tool, filter your search for cards according to your credit score. Read the fine print on each of offer, carefully comparing interest rates, fees, maintenance costs, penalties, grace periods and other details.
3. Deposit. Put down a deposit, usually $200 to $500, which becomes your collateral.
4. Learn your limit. You'll get a credit limit, usually equivalent to your deposit. If you deposit $400, for example, your credit limit is $400.
Even if you have good credit, there are reasons why a secured card may be a good fit for you. One of the secured card's best features is its limitations, so you might like a secured card if you are:
When you're shopping for a card, be sure to choose one that sends your payment activity and account information to all three of the major credit bureaus - Equifax, TransUnion and Experian. This allows your credit score to benefit most from your credit usage and on-time payments.
Think of the card not as a convenience so much as a way to build credit. To get the most from it, it's important to know how credit scores treat your usage and payment activity.
One credit score factor compares how much credit you're using with the credit limit on your card. That's called your "utilization ratio."
To help build your credit, keep your utilization ratio low. Do that by carrying a balance that's no more than 10% to 25% of your credit limit. Running up your card balance hurts your ratio, damaging your credit score.
For example, if your credit limit is $300, keep your balance under $75. If your limit's $200, keep the balance under $50. If it's $500, don't go over $125. Note, though: you don't have to run up debt to have good credit. It's perfectly fine to pay your balance off in full each month.
Your payment history affects up to 35% of your credit score. Late payments bring down your score, while on-time payments keep your credit score healthy.