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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.
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.
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.
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.
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.
The best secured credit card is the one that’s right for you. Consider looking for cards that do the following:
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.
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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.
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