Secured credit card how much should i deposit

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If you don’t qualify for a traditional credit card because you have no credit history, secured credit cards are a great way to get your toes wet and learn how credit works. Sometimes, it’s the only way to get a second chance at breathing again if you’re drowning in debt.

With secured credit, you get all the convenience and privilege of a traditional (unsecured) credit card, but only after making a cash deposit as collateral to secure the card issuer against any loss. Secured cards are offered by nearly every bank and card company that issues traditional cards, but the most attractive offers (i.e. least expensive fees) might be the ones offered at credit unions.

The cash deposit typically ranges from $200 to $500 and almost always equals the credit limit assigned to that card. In other words, if you make a $300 deposit, you likely will have a $300 credit limit on your card. Be aware that the deposit will not be applied to the monthly charges, unless you default on payment.

Unlike prepaid debit cards, most secured credit cards report account information to the three major credit bureaus, thus helping you start or re-establish your credit history.

Those conditions could be an ideal way for college students to get in the game. They learn how to use a credit card without having to pay too large a penalty for mistakes. The credit limits will keep purchases at a reasonable level and the cash deposit acts as an affordable backstop if things spiral out of control.

Secured credit cards also open the door for people who made mistakes managing debt and need to re-establish their creditworthiness. Credit card companies look at responsible use of secured credit cards in a favorable light. Most are willing to let a consumer graduate back to an unsecured card if they prove they can handle a secured credit card responsibly.

Advantages of a Secured Credit Card

Secured credit cards operate almost identically with traditional credit cards. They can help you create or improve your credit history. You can use them to make payments almost everywhere. You receive monthly billing statements detailing what you bought and how much you owe. There is a deadline for payments.

The major difference is the deposit you make that actually makes the secured card secure. That deposit is not applied to monthly charges. If you make only a minimum payment, interest rate charges will apply on the balance.

Perhaps the biggest benefit is that responsible use can lead to approval for an unsecured credit card (i.e. one with no deposit required). That should be the goal for anyone using a secured credit card.

Other advantages of a secured card include:
  • It is accepted anywhere traditional credit cards are accepted, thus providing the same convenience.
  • It allows the card holder to build a credit history in a controlled environment. The credit limits on secured cards are usually lower than traditional cards, which should help keep spending down.
  • It will help you establish a credit score if you have never had one, or improve your credit score if it needs some repair work.
  • It allows you to purchase products only available online and can be used to secure reservations with hotels and car rental agencies.
  • It serves as an emergency backup for those times when you don’t have enough cash or a check available for an unexpected expense.

The best thing to do when you receive a secured credit card is use it for the same purposes you would a traditional card. Experts suggest you apply the same utilization rate as an unsecured card, meaning limit your purchases to 30% or less of the available credit. That will improve your credit score.

Most importantly, make your monthly payments on time. Whether you’re trying to build a credit history or re-establish one, the single biggest factor in your favor is on-time payments.

If you make on-time payments every month, your credit score could reach an acceptable enough level (generally higher than 630) to obtain an unsecured credit card in a year or less.

Warning Signs for Secured Credit Cards

There are some things every consumer should be mindful of when investigating secured credit cards.

First, make sure the company that issues the secured card reports activity to the major credit bureaus: Experian, TransUnion and Equifax. Most secured cards do report, but there are still a few that don’t. If you are trying to establish or improve your credit score, you’re wasting your time if spending and payments aren’t reported to the credit bureaus.

Carefully read the conditions for each card and take note of interest rate charges and any fees that could be applied. Generally speaking, the interest rates on secured cards are higher than those for traditional credit cards. Also, most secured cards have fees — sometimes several fees — tied to the card. Activation, annual, late payment and cash advance fees are just a few of the added charges that could change your mind about a card.

Be sure there is a “grace period” for making payments. A grace period starts on the final day of the billing period and ends on the due date. That time frame should be at least 21 days, with most cards offering a 25-day grace period. If there is no grace period, you will pay interest on a purchase as soon as the card gets swiped. That can be costly over the course of a billing period.

Finally, you should investigate the card issuer’s policy on returning the deposit. Some companies offer to pay interest on the deposit. It’s nice to take a little cash home with you when you’re ready to move on to an unsecured card.

Build Good Habits with Secured Credit Cards

Low credit scores can entrap users by preventing them from getting new credit card accounts, which prevents users from building up their credit scores. That’s where secured credit cards come in.

When looking for a secured credit card, begin by finding out your credit score because you may already qualify for an unsecured credit card, which has far more benefits than an unsecured card. Federal law provides for one free credit report every year from each of the three credit bureaus. Talk to your bank if you have one and see whether you qualify for a secured or unsecured card.

If you must go the secured card route, go online and compare the offers available. Some secured cards have no annual fee, some have no activation fee, some have varying interest rates and some give you a bonus like providing your credit score every month.

A security deposit can range from $200 to $10,000. At the beginning, your credit limit typically is equal to or lower than your deposit. You can raise your credit limit by adding to the deposit down the road.

Secured cards generally have a lower credit limit than traditional credit cards, which prevents users from taking on more debt and doing more damage to their credit scores. Even if your credit limit is initially low, you can build good habits by making small purchases and paying them off. Experts recommend limiting purchases to less than 30% of the credit that is available in your account.

In order to show major credit card companies your ability to properly use credit, you will want to make your monthly payments on time. This activity on your account should be reported to the credit bureaus, and your credit score should start to rise.

Be certain to read the offer information on a secured credit card to ensure that they are reporting your activity to all three credit bureaus. It is important to make sure that the information is accurate and that banks are reporting your positive account activity (“good standing”) in a timely fashion.

Your credit limit can be raised after keeping the account in good standing for six months or more, depending on the bank.

Some cards report good standing even when purchases are not made on the account. By keeping these cards at a zero balance, you can build your score without any hassle. Some banks will even offer interest on your security deposit.

Pay on Time and Avoid Defaults

Just as practicing good habits with a secured credit card has benefits, returning to bad spending habits with a secured credit card has consequences.

Payments must be on time or interest will be charged on balances kept in the account. If minimum payments are not made, late fees may be added.

The inability to pay your monthly bill may result in losing the deposit and possibly the account. The security deposit stays in the account while it is open, but can’t be applied to the monthly balance.

If you can’t make a payment within a specified time — it varies from card to card, but 30–60 days after the due date is a common time frame — you will default and several negatives kick in:
  • The default will be reported to the three credit bureaus and damage your credit score.
  • Your card will be cancelled and no more charges will be approved.
  • Your deposit will be applied to settle the unpaid balance.
  • If there is any deposit money left over, you have to call or write the lender to request a refund.

Closing a Secured Credit Card Account

If you are ready to close a secured credit card account, you can call or write the bank or card company to inform them, but the most important step is to make a final payment and get the balance down to zero.

If you don’t talk to your bank or card company about your desire to close the account — and presume they’ll just take the final balance out of your deposit — you may end up paying several penalties and have negative activity reported to the credit bureaus.

In most cases, it is wise to close a secured credit card account as soon as you become eligible for a traditional credit card, but as always, there are some mitigating circumstances to consider before running away.

A secured card helps you establish a credit history, one of the five major factors involved in determining a credit score. If you have a secured card for 12–18 months and then switch to a traditional card, you lose the 12–18 months of history you had and start all over again.

If you are looking for a loan to make a major purchase, your credit score will come into play and you wouldn’t want to do anything that has a negative effect on it. Thus, you may want to keep the secured card account open, until you have built up a credit history with the traditional card.

However, if you aren’t looking for a loan immediately, there is no reason to keep the secured account open. You not only would eliminate the monthly fees that accompany most secured cards, you also would have access to the deposit money that stands behind your secured card.

Many companies that issue both secured and unsecured credit cards, will allow you to graduate to an unsecured card. If your company won’t, check your credit score and if it’s above 630, you could qualify for an unsecured card from one of the major banks or card companies.

How a secured card's security deposit works

Dear Opening Credits,

I just created my account at Bank of America several months ago, and got an offer for a credit card via email. I thought it might be helpful, so I applied. I was asked to pay a certain amount of money to set the credit limit (which would be my credit limit for a month). When I applied, I thought it might be a kind of deposit. Now I have no idea what I paid. Do you think I can get it back when I cancel the credit card? – Gang

From your description, I’m almost certain that you applied for Bank of America’s secured card. This bank – like most financial institutions that offer credit cards – offers a variety of products, each one designed for different needs and levels of creditworthiness. After you applied and were approved, you sent in a security deposit. You’ll get it all back when you close the account with zero balance due.

Here is how it all works – and why you may want to stick with this account for a while.

The card you have is a type of secured card, designed for people who either have not established a credit profile yet or who have experienced past credit problems. For example, applicants may have charged their credit cards to the hilt, have a long pattern of paying accounts late, owe money to collection agencies or have filed for bankruptcy protection. In such cases, the person’s credit scores (which are generated from the data listed on credit reports) would be negatively affected. A new credit issuer would be rightly hesitant to grant an unsecured credit card to someone with a bad score. After all, it indicates that the applicant is a risky customer!

Secured cards can come to the rescue. The issuer requires a certain amount of money to be put down as security. In exchange, the issuer offers a credit card for the person to use. This particular card’s minimum security deposit is $300 and the charging limit is determined by income, current debt load and the amount of the deposit. Secured accounts usually have annual fees and higher-than-average interest rates, as does this card. It costs $39 a year and comes with an APR of 20.49 percent.

If you pay your bill on time (and in full), all is well. The positive activity will be reported on your credit file and will help your credit scores rise. In as little as a year, you can really hike those numbers up. However, if you use the card, but run up a debt and allow the account to go seriously delinquent, the issuer will not just report the delinquencies (which will hurt your scores), but will claim the amount due from the funds held in reserve.

So the question is, do you need this kind of credit card? If your credit scores could use a boost or if you are just beginning to build a credit profile, a secured card can work beautifully. Just manage it responsibly and all you’ll be out is the annual fee, which is actually quite reasonable. The interest rate won’t matter as long as you pay your bills off completely every month.

Conversely, if you don’t want or need the card because you qualify for something better, contact the bank immediately. Because you haven’t used it yet, you don’t owe a balance. That means the entire security deposit you sent should be reimbursed, minus any fees.

6 Best Secured Credit Cards to Rebuild Credit – Reviews & Comparison

How’s your credit these days?

If you’d prefer not to answer that question, you’re not alone. Millions of Americans have imperfect credit due to bankruptcy, foreclosure, crushing medical or student loan debts, and other financial black marks. A bad credit score can affect your ability to secure an affordable home loan, rent an apartment, get a cell phone, and even find a job. While credit counseling and debt management plans can help you repair your credit over time, there’s no magic cure.

For other folks, the problem isn’t bad credit so much as no credit. Consumers who haven’t previously used credit are ciphers to lenders and credit card companies, which are understandably wary about lending to people without a track record of timely repayments.

Whether you’re dealing with the negative effects of bad credit, or simply don’t have much of a credit history to speak of, applying for a secured credit card could end up being a critical first step on your path out of the credit wilderness.

Most credit cards are unsecured. Unsecured cardholders aren’t required to put up any collateral before using their cards.

Secured credit cards are different. They require cardholders to make cash deposits, usually equal to (and sometimes greater than) their initial credit limits, before making charges. These deposits, and the corresponding credit limits, are often low compared to unsecured credit cards’ spending limits – rarely more than $500 at the outset. Over time, issuers reward cardholders for timely payments by increasing their spending limits, in many cases without asking for an additional deposit.

Secured card issuers scrupulously report cardholders’ spending and payment patterns to consumer credit bureaus. For cardholders who use their cards judiciously and make timely payments, this builds and improves credit over time. For cardholders who pay their balances late or not at all, or max out their cards’ spending limits, this ongoing reporting can have negative consequences.

Many cardholders use secured cards temporarily, for credit-building or -improvement purposes. Once their credit is on better footing, they close their accounts and receive their deposits back. Many secured credit card issuers allow cardholders in good standing to graduate to unsecured credit cards after a year or two, eliminating the hassle of closing accounts and applying for new cards.

With these basics in mind, here is a look at the best available secured credit cards.

1. Capital One® Secured Mastercard®

Minimal Fees; Possibility of Credit Limit Greater Than Initial Deposit; Credit Limit Increases Without Additional Deposits

Capital One® Secured Mastercard® is one of the few secured credit cards that entitles some cardholders to a credit limit greater than their initial deposit. It’s also noteworthy for comparatively low fees and a smooth process for qualifying for credit limit increases. Said increases don’t necessarily require additional cash deposits, further reducing the card’s cost.

This card reports payments and credit utilization to all three major consumer credit bureaus: Experian, Equifax, and TransUnion.

Deposit Requirements, Benefits, and Restrictions

Capital One® Secured Mastercard® requires a minimum refundable security deposit of $49, $99, or $200, depending on your credit profile. You need to make the deposit within 80 days of applying for the card. Regardless of your deposit size, your initial credit limit is at least $200. It can range up to $3,000, depending on your creditworthiness.

To raise your credit limit, you can make additional deposits in $20 increments, up to the $3,000 maximum. If you demonstrate a pattern of reliable payments over several consecutive billing cycles, you can access a higher credit line without an additional deposit. Capital One has sole discretion over amount and frequency of these “free9rdquo; credit limit increases.

  • Fees: There’s no annual fee or foreign transaction fee. Cash advances cost 3% of the amount of the cash advance, but not less than $10. Late payments cost Up to $35 each.
  • APR: The purchase APR is 24.99%. It varies depending on prevailing interest rates. Notably, there’s no penalty APR.
  • Other Perks: You get free, unlimited access to your credit score. You also get full access to Capital One CreditWise, which also includes a “what-if simulator” that lets you run different scenarios to predict changes in your credit score and debt load.

Reasonable APR; Relatively High Credit Limit

The Citi Secured MasterCard has roughly average fees and APRs. Its credit limit is above average, making it ideal for cardholders with high spending needs. However, the credit limit is always identical to the deposited amount – there’s no way to increase your credit limit without making an additional deposit. Also, Citi automatically denies card applicants who’ve recorded a bankruptcy within the past two years – a harsher position than some other secured card issuers.

Deposit Requirements and Benefits

Once you’re approved for the Citi Secured MasterCard, you have 30 days to deposit as little as $200 or as much as $5,000. You can make additional deposits to raise your credit limits, but your funds are tied up for at least 18 months and don’t earn interest during that time.

f you make timely payments for the duration, Citi may elect to return your deposit and allow you to continue using your card. Your payment and credit utilization patterns are automatically reported to all three consumer credit bureaus.

  • Fees. There’s a $25 annual fee. Foreign transactions cost 3%. Cash advances cost the greater of $10 or 5%, and balance transfers cost the greater of $10 or 3%. Late and returned payments cost $35 each.
  • APR. The regular purchase and balance transfer APR is 21.99% and varies depending on prevailing interest rates. The cash advance APR is 25.24%, and the penalty APR ranges up to 29.99%.
  • Other Perks. Citi’s perks include complementary auto insurance on car rentals charged to your card, as well as zero-liability fraud protection.

3. OpenSky® Secured Visa® Credit Card

Low APR and Reasonable Fees; No Credit Check Necessary With Application

Although it comes with a moderate annual fee, the OpenSky Secured Visa credit card boasts one of the lower secured credit card APRs around. It also doesn’t require a credit check with your application, meaning it’s a great choice for folks with poor or spotty credit. Negatives include a maximum credit limit lower than some competing cards and no balance transfers.

Deposit Requirements and Benefits

To get started with the OpenSky Secured Visa, you need to make an upfront refundable deposit of at least $200. Your deposit can be as high as $3,000, depending on your creditworthiness. Your credit limit is always equal to your deposited amount.

OpenSky reports to all three credit reporting bureaus. One significant drawback is that unlike some other issuers, the OpenSky Secured Visa doesn’t allow for a transition from secured to unsecured. You can keep your account open as long as you like, but you don’t receive your security deposit back until you request to cancel the card and pay your balance in full.

  • Fees. There’s a $35 annual fee. Cash advances cost the greater of $6 or 5% of the advanced amount. Late payments cost $27, and returned payments cost $25. Foreign transactions run 3% of total transaction amount.
  • APR. The regular purchase and cash advance APR is 17.64%, depending on prevailing interest rates. The penalty APR ranges up to 21.99%. Notably, OpenSky doesn’t charge interest during the first billing cycle. In other words, there’s effectively a one-month 0% introductory APR.
  • Other Perks. OpenSky has lots of credit education material for inexperienced credit users. It also has other financial products, including home loans and consumer bank accounts, through Capital Bank, its parent company.

Find out how you can apply for this card here.

Reasonable APR; Laid-Back Credit History Requirements; Earn Interest on Your Deposit

The U.S. Bank Secured Visa Card’s biggest advantages include easy approval for applicants with poor credit and a reasonable APR (relative to other secured credit cards). The unusually long grace period of up to 30 days, compared with the more typical 20- to 25-day grace period for this card class, is a useful backstop against late payments. Drawbacks include somewhat high fees.

Deposit Requirements and Benefits

To get started with the U.S. Bank Secured Visa Card, you need to make a deposit of at least $300 and as much as $5,000, depending on your creditworthiness. Your credit limit is always equal to your deposit amount. Said deposit is held in an FDIC-insured, interest-bearing (0.05% to 0.10% APY) U.S. Bank savings account, rather than a no-interest escrow account, as is the case with the Citi Secured MasterCard.

If you make timely payments for at least 12 months, you’ll likely qualify for an unsecured credit card and receive your security deposit back in full, with interest.

  • Fees. There’s a $29 annual fee. Late payments cost $35, and returned payments run $38. Balance transfers cost the greater of $5 or 3% of the transferred amount, while cash advances cost the greater of $10 or 4%. Foreign transactions cost 2% when denominated in U.S. dollars, and 3% when denominated in foreign currency.
  • APR. The regular purchase and balance transfer APR is 19.24%, variable with prevailing interest rates. The cash advance APR is 24.24%.
  • Other Perks. The U.S. Bank Secured Visa Card comes with nice fringe benefits, including complementary insurance when you charge a car rental purchase to your card.

Find out how you can apply for this card here.

5. Wells Fargo Secured Visa® Credit Card

High Credit Limit; Reasonable APR

The Wells Fargo Secured Visa Credit Card comes with a very high credit limit ($10,000) and boasts a reasonable APR (19.24%). Fees are a bit on the high side, but not overwhelming. Wells Fargo shares your payment and credit utilization information with all three credit reporting bureaus.

Deposit Requirements and Benefits

To get started with the Wells Fargo Secured Visa Credit Card, you need to make a deposit of at least $300 and no more than $10,000. Your deposit is your credit limit, and you can add more funds at any time. After 12 months of timely payments, Wells Fargo reviews your account and may upgrade you to an unsecured arrangement, refunding your security deposit in exchange.

  • Fees. There’s a $25 annual fee. Balance transfers cost the greater of $5 or 5% of the transferred amount. Cash advances cost $10 or 5%. Late and returned payment fees run $37. Foreign transactions cost 3% of the total transaction amount.
  • APR. The regular purchase and balance transfer APR is 19.24%, variable based on prevailing interest rates. The cash advance APR is 24.24%.
  • Other Perks. Wells Fargo offers numerous fringe benefits, including a cell phone insurance policy (up to $600 to cover loss or damage) for devices purchased with the card.

Find out how you can apply for this card here.

6. Merrick Bank Secured Visa® Card

Relatively Low APR; Relaxed Credit Standards

Merrick Bank’s Secured Visa credit card makes no bones about being for consumers with poor credit. Its approval standards are very laid back, so it’s definitely worthwhile to apply even if you’ve been denied by other secured credit card issuers. A relatively low APR helps with the ongoing cost of the card, though higher than average annual fees cut into those savings.

Annoyingly, you’re not allowed to make balance transfers with this card. Merrick Bank does report your payment and credit utilization information to all three credit bureaus though.

Deposit Requirements and Benefits

Merrick Bank lets you deposit as little as $200 or as much as $3,000. You’re encouraged to deposit as much as you feel comfortable depositing – your deposit isn’t limited by your credit profile, only by Merrick’s $3,000 limit. Your credit limit is always equal to your deposit amount. Your deposit is FDIC-insured, but doesn’t earn interest.

Merrick Bank doesn’t automatically convert its Secured Visa into an unsecured card. If you want to graduate to an unsecured card, you need to apply for a Merrick Bank (or other issuer’s) unsecured card. To get your deposit back, you need to close your Secured Visa Card account.

  • Fees. There’s a $36 annual fee for the first year and a $3 monthly fee thereafter. The cash advance fee is the greater of $10 or 4% of the advanced amount. Foreign transactions cost 2% of the total transaction amount. Late and returned payments both cost $38.
  • APR. The regular purchase APR is 17.70%, and the cash advance APR is 22.70%.
  • Other Perks. You’re entitled to a free FICO score every month your account is active. Merrick Bank also offers RV loans, which come in handy for folks who want to take road trips or cross-country driving vacations in comfort.

Find out how you can apply for this card here.

Each secured credit card on this list is designed to boost folks with poor credit or spotty credit histories. However, they can’t single-handedly dig their users out of financial holes or accelerate them painlessly down the road to the promised land of easy, low-cost credit.

Building and improving credit takes time and discipline. In addition to applying for a secured credit card and making timely, in-full payments, follow these straightforward tips:

  • Pay all bills, including utility bills and rent payments, on time
  • Keep your debt utilization ratio – the sum of your credit balances divided by the sum of your credit limits – below 30%, if possible
  • Don’t open multiple accounts at once
  • Avoid closing too many accounts at once
  • Check your credit score regularly and remember to order your free annual credit report from AnnualCreditReport.com

If you play your cards right, you could find your credit situation significantly improved in less time than you ever thought possible.

Do you use secured credit cards? Which is your favorite?

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author's alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

What Is a Secured Credit Card? How Is It Different From an Unsecured Card?

Here’s a catch-22: A credit card is the quickest way to build good credit, but you often can’t get a credit card without good credit.

Secured credit cards can help people with bad credit or short credit histories escape this paradox. Here’s what you need to know to understand secured cards and how they differ from regular unsecured cards.

A secured credit card is backed by a cash deposit you make when you open the account. The deposit is usually equal to your credit limit, so if you deposit $200, you’ll have a $200 limit.

The deposit reduces the risk to the credit card issuer: If you don’t pay your bill, the issuer can take the money from your deposit. That’s why these cards are available to people with bad credit or no credit.

What happens to that $200 deposit if you always pay your bill on time? You’ll eventually get it back. Use the card responsibly, and you can improve your credit enough to qualify for an unsecured card — one that doesn’t require a deposit.

The deposit is usually equal to your credit limit, so if you deposit $200, you’ll have a $200 limit.

Some of the best secured cards may allow you to upgrade your account directly to an unsecured card. Others don’t have an upgrade process, so you’ll have to apply elsewhere, then close the secured card. When you upgrade or close a non-delinquent secured card, the issuer refunds your deposit.

The minimum and maximum amount you can deposit varies by card, but you should be prepared to come up with at least $200 for a secured card deposit.

Whether you need a secured card comes down to how good your credit is.

For unsecured cards, which don’t require a deposit and therefore pose more risk to the issuer, credit-card companies typically require at least average credit, and good or excellent credit for the best ones.

Some unsecured cards advertised as easy to get come with extremely high fees.

Some unsecured credit cards advertise themselves as easy to qualify for even if you have bad credit. But these cards usually charge extremely high fees. NerdWallet recommends applying for a secured card rather than a high-fee unsecured card.

Once the initial deposit is paid, secured cards work just like unsecured ones:

  • You can use them wherever credit cards are accepted, including online
  • You can build or rebuild your credit by using the card responsibly and paying your balance on time
  • You incur interest if you carry a balance

Most major credit card issuers offer both secured and unsecured cards. Annual fees are common, but you shouldn’t pay more than $50. You can find secured cards with a $0 annual fee among our favorites.

If you can’t qualify for an unsecured card, a secured card can be a great tool as you look to improve your credit. But it’s as important to be responsible with a secured card as it is with any other loan or bill that shows up on your credit report.

Secured credit cards vs. prepaid debit

Prepaid debit cards seem similar to secured credit cards. You have to pay money before you can use the card, and they typically have a Visa, MasterCard or American Express logo.

But with prepaid debit cards, you’re using your own money to make purchases — not money borrowed from the issuer. You load money onto the card, then the issuer uses that money to pay for your purchases.

If building credit is your goal, a secured credit card is a better bet than a prepaid card.

Since these cards don’t extend any credit, account activity isn’t reported to the credit bureaus. Therefore, you’re not building a credit history by using a prepaid card. Prepaid debit cards can also have fees that secured credit cards do not.

If building credit is your goal, a secured credit card is really your best bet.

How to use a secured card effectively

Although they require a deposit, secured credit cards are a powerful tool for rebuilding credit. Here’s how to use one most effectively:

  1. Use the card sparingly, making only one or two small purchases every month
  2. Pay your balance in full every month before the due date. When you pay in full, you won’t be charged interest. Interest rates on secured cards are generally higher than those on unsecured cards.
  3. Keep an eye on your credit score over time; when it has meaningfully improved, ask your issuer about upgrading to an unsecured card

Many people find that by using a secured card carefully, it takes only about a year to improve their credit score enough that they’re able to qualify for an unsecured card. Some issuers will let you transfer your secured line of credit to an unsecured one, which is better for your credit score because it doesn’t require you to open a new account.

But even if you do have to apply for a new unsecured credit card, you may be able to enjoy some of the benefits of having good credit — lower interest, rewards and more competitive fees.

When that day comes, your time rebuilding your credit with a secured credit card will have been worth it.



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