Credit scores are based on an individual’s history of managing credit cards, loans and other financial products. A secured credit card won’t be a magic elixir for someone with multiple accounts in collections, nor will it instantly vault someone with no credit history into an elite credit score. These cards can have a positive effect in certain situations, however, and in some cases may have a significant impact on your credit score.
Securing Your Credit
A secured credit card uses your own money as the determining factor in the size of your credit line, with your credit limit based on the amount you deposit with the issuer. Despite that deposit, a secured card functions as an extension of credit because that money’s just your collateral. It’s not automatically debited to pay your bills each month – you’re still responsible for making your payments. Because of this, a secured card is seen as a reflection of your ability to manage credit, and therefore factors into your credit score.
Secured credit cards may be the only option if you don’t have a credit history to prove to issuers that you’ll handle credit responsibly. The good news is that paying your balance every month goes a long way to doing just that. Your path to a higher credit score can be hastened by the responsible use of a secured card, and you may soon be able to convert that to an unsecured card and have an easier time getting other credit offers.
If you’ve had a bad experience with credit in the past, a secured card can help you change that narrative and prove you have developed better habits. Your most recent actions are seen as predictive of future behavior, so keeping a secured credit card with a low balance and a track record of on-time payments can start to mitigate the older damage on your credit report. With a poor credit history, it's even more important to make on-time payments every month, but you'll see the positive impact on your credit score as your older, less-attractive accounts become less important in the scoring process.
Check Your Status
Getting a major secured credit card has a greater effect than a gas card or department store credit card. Look for a secured card with the backing of one of the major issuers: MasterCard, Visa, American Express or Discover. In addition, make sure the issuer reports its records to the three major credit bureaus, and check after opening the card to make sure that actually occurs. Without that reporting, even the best payment record won’t change your score at all.
- MSN Money: Raise Your Credit Score to 740
- U.S. News & World Report: The Hidden Benefits of Secured Cards
- New York Times: Rebuilding Your Credit Score
- Discover Financial Services. "What Is a Secured Credit Card?" Accessed May 23, 2020.
- Experian. "How to Build Credit." Accessed May 23, 2020.
- Experian. "Understanding Secured Credit Cards." Accessed May 23, 2020.
- Capital One. "Secured Mastercard From Capital One." Accessed May 23, 2020.
- Discover Financial Services. "What to Do If You're Denied a Secured Credit Card." Accessed May 23, 2020.
- Discover Financial Services. "Discover It Secured Credit Card." Accessed May 23, 2020.
- TD Bank. "You May Be Eligible for a TD Bank Unsecured Card." Accessed May 23, 2020.