Does a secured credit card improve credit score

Q: How much will a secured credit card raise my score?

Its hard to say exactly how much a secured credit card will raise your credit score, or how fast your score will improve. A good ballpark estimate is that you should see a bit of improvement after a few months and solid gains after a year, assuming you pay your bills on time.

If you plan to apply for a school loan, buy a home or lease a car, it helps to have a positive credit history. But if you have bad or limited credit, you’re not completely out of luck. A secured credit card is one option that can help you build—or rebuild—your credit score.

Table of Contents Show

Key Takeaways
What Is a Secured Credit Card?
How Does a Secured Credit Card Work?
Pros and Cons of Secured Credit Cards
Pros Explained
Cons Explained
Frequently Asked Questions (FAQs)
Which banks offer secured credit cards?
What are the top-rated secured credit cards?
How do secured credit cards help you build credit?
How much will a secured credit card raise my score?
What are 2 downsides of getting a secured credit card?
Should I get a secured credit card to build credit?
Will getting a secured credit card hurt my credit score?

Secured credit cards function a lot like traditional credit cards. The primary difference is that with a secured card, you pay a cash deposit upfront to guarantee your credit line.

While credit history may be used to determine eligibility for a secured card, the line of credit it offers requires a security deposit. This security deposit acts as a safeguard for banks to cover any purchases, should you miss payments. Making your monthly payments on time is just as crucial with a secured credit card as with a traditional card. Remember, if you default on your payments, the card issuer may keep your deposit.

One of the toughest times to get a credit card is when you have bad credit or no credit at all. The trouble is, you often need a credit card to start building a good credit history, but you also need a good credit history to get approved for many credit cards. If you can't get approved for a traditional credit card, a secured credit card is an alternative worth considering.

Learn how secured credit cards work and whether one is a good fit for you.

Key Takeaways

Secured credit cards require a deposit.
It's easier to be approved for a secured credit card than for an unsecured one.
Secured credit cards may have higher interest rates and more fees than unsecured cards.

What Is a Secured Credit Card?

Secured credit cards require a deposit that serves as collateral for purchases you make using the card. If you default on your payments, the card issuer keeps your deposit. Otherwise, as long as you keep your account in good standing, your credit card issuer will return your deposit to you after a certain number of months or when you close your account.

Note

The credit limit on your secured credit card typically will be equal to your security deposit. In some cases, your credit limit can be bigger than your security deposit, depending on the card you choose and your credit rating.

How Does a Secured Credit Card Work?

You can use the secured credit card just like you'd use any other credit card. Swipe it for purchases up to your credit limit, and make timely payments toward your balance each month. The application process is also the same as a traditional credit card. Card issuers review your credit history. If you're approved, you pay your security deposit.

Pros and Cons of Secured Credit Cards

Pros

Typically reported to credit bureaus.
Can help you establish or re-establish credit.
Your security deposit is only used if you default.
You may be able to earn rewards.
Easier to get approved

Cons

It can be difficult to come up with the security deposit.
There may be other fees such as a maintenance fee and annual fee.
You may pay a higher interest rate.

Pros Explained

Secured credit cards can be a good option for building or rebuilding your credit. Five benefits stand out for consumers with blemished credit or no credit at all.

You can often get approved for a secured credit card when you can't get approved for a traditional credit card. Paying the security deposit shifts the credit risk away from the credit card issuer.
They typically report to credit bureaus. Unlike a prepaid credit card which functions more like a debit card, a secured credit card will send your account history to the credit bureaus to be included in your credit report.
A secured credit card can help you establish or re-establish your credit. Since payments are included in your credit report, paying on time and managing your balance will help improve your credit score. After raising your credit score, you may be able to qualify for a regular credit card.
Your security deposit is used only if you default on your payment. Unless your defaulted balance is more than your deposit, you won't get sent to collections for defaulting on your payments. Though the card issuer will keep your deposit, you don't have to worry about debt collectors hounding you for missed payments on the card. The late payments still will hurt your credit score, however.
You can earn rewards on purchases with some cards, such as Discover and Navy Federal's secured cards.

Cons Explained

While secured credit cards can be appealing for those who are trying to improve their credit scores, there still are a few disadvantages.

It might be difficult to come up with even a couple of hundred dollars to make a security deposit. If you do have that money, it might be better spent paying off some outstanding debt. Try setting aside $25 to $50 each month until you've saved up enough for the security deposit.
There may be fees in addition to the deposit. Depending on the card you choose, you might have to pay an application fee, processing fee, or an annual fee to have your secured credit card. This increases the cost of having the card. Shop around and select the card with the lowest fees.
You may have to pay a higher interest rate. Secured credit cards don't usually offer competitive interest rates because of the risk of default. To avoid high finance charges, pay your balance in full each month.

Frequently Asked Questions (FAQs)

Which banks offer secured credit cards?

Many banks and card issuers offer secured credit cards. If you have a preferred bank, consider asking whether they offer a secured credit card. Don't apply for a card without digging into the terms and conditions, however. Look at the APR, fees, and whether you can be transitioned to an unsecured card in the future.

What are the top-rated secured credit cards?

The Discover it Secured card, the Secured Mastercard from Capital One, and the Secured Visa from Merrick Bank are highly rated secured credit cards. Discover it Secured offers cashback rewards. The Secured Mastercard from Capital One has a low deposit requirement. The Secured Visa from Merrick Bank has a relatively low APR.

How do secured credit cards help you build credit?

Card issuers report your payment history and credit utilization to the credit bureaus. Paying on time and keeping a low balance on your card can improve your credit score. The key to using a secured credit card to build credit is to use it responsibly.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

How much will a secured credit card raise my score?

It's hard to say exactly how much a secured credit card will raise your credit score, or how fast your score will improve. A good ballpark estimate is that you should see a bit of improvement after a few months and solid gains after a year, assuming you pay your bills on time.

What are 2 downsides of getting a secured credit card?

Adam McCann, Financial Writer Two downsides of getting a secured credit card are the required security deposit and the fact that your credit limit is likely to be low. All secured cards make you put up a deposit in order to open an account, and your credit limit typically equals the amount of the deposit.

Should I get a secured credit card to build credit?

Opening a secured credit card account can be a very good way to start building or improving your credit history, especially since secured cards tend to be easier to qualify for than a traditional credit card account.

Will getting a secured credit card hurt my credit score?

Yes, opening a secured credit card can hurt your credit if the issuer runs a hard inquiry on your credit report to assess your creditworthiness. A hard inquiry will likely lower your credit score by a few points, though your score should bounce back within a few months if you use your new secured card responsibly.

secured credit card improve credit score