How Long Does It Take To Build Credit With a Secured Credit Card?

How Long Does It Take To Build Credit With a Secured Credit Card?

How secured cards work

A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you're required to make a deposit (known as a security deposit) in order to receive a line of credit. The amount you deposit usually becomes your credit limit.

Deposits typically start at $200 and can range to upwards of $2,500. If you make a $200 security deposit, you'll receive a $200 credit limit. If you want a bigger credit limit, you'll need to deposit more money.

The amount you deposit acts as collateral if you default on payments, but it's completely refundable in one of two ways: Pay off your balance in full and close your account, or upgrade to an unsecured card.

Secured cards offer many of the same benefits as traditional credit cards, but they are typically easier to qualify for if your credit history is poor or non-existent.

The one big difference, in addition to the required security deposit, is the interest rate. Secured cards usually offer all users one variable interest rate, say 24.99%, for example. Meanwhile, an unsecured card often features a range, say 13.99% to 24.99%. In most cases, the better your credit score the lower APR you'll receive. Since secured cards often only have one, relatively high APR, it's extremely important you always pay on time and in full to avoid interest charges.

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How Does a Secured Credit Card Work?

Once you have a secured credit card, you can use it like any traditional credit card. Keep in mind that because a secured credit card is a way to improve and build stronger credit history, you’ll want to pay your monthly bill on or before the due date. Even though you made a deposit to open the card, you’re still required to make your monthly payments.

Then, once you’ve established a history of good credit (which can happen after as few as 6 months of on-time payments), you can upgrade your account, and the hold would be released on your deposit—provided your balance is fully paid and the account is in good standing. Alternatively, some secured card providers will give you the option to transfer to another non-secured card. This option has the benefit of increasing your average account age, which could help your credit score.

If you have Navy Federal’s nRewards® Secured credit card, after just 3 months, you could be eligible for an upgrade. If you qualify, we’ll provide you with additional credit to allow for spending beyond your deposit.

Then, at 6 months, we’ll review your account monthly to see if you’re eligible to have your hold removed and be upgraded to a cashRewards unsecured card.

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.

Potential Benefits of Secured Credit Cards

There are plenty of advantages to using secured cards: A secured card can give you experience using a credit card, help you improve your credit profile and help you work toward a card with better rewards or a higher credit limit. 

It may help to think of a secured card like on-the-job training you can use to move on to bigger and better opportunities. 

Use a Secured Card to Build Credit

If you’re looking to build or rebuild your credit, you can use a secured card to help yourself build a successful track record. That means doing things like paying at least the minimum payment on time each month and using your card responsibly.

Keep in mind that missed or late payments could harm your credit. And so could exceeding your credit limit.

Another fact to consider: Some issuers may not report the status of secured cards. If better credit is your goal, look for a secured card that reports to at least one of the three major credit bureaus: Experian®, Equifax® and TransUnion®.

Secured Cards Can Help You Graduate to Traditional, Unsecured Cards

There’s no single right time to move from a secured card to an unsecured card. When and why you decide to apply for a traditional credit card will depend on your situation and goals. 

But some credit card companies may allow you to move seamlessly from a secured card to a traditional card without closing your original line of credit. The process may even involve returning your deposit.

Check with your credit card company to understand what’s possible and how your account will be treated if you transition to a traditional card. And be sure to understand how closing your secured card account could affect your credit.

Do secured credit cards build credit?

They can. Secured credit cards are aimed at people with limited or poor credit history and can be a good way to improve your credit score. By making regular, reliable payments on a secured credit card, you can improve your credit score and access less expensive forms of credit.

How Fast Can a Secured Credit Card Help My Credit?

A secured credit card can help you build credit if you use it to make small purchases and pay the balance in full on or before the due date each month. This shows creditors that you’re able to responsibly manage your debts. Your credit score could also benefit if you pay on time, as payment history accounts for 35% of your FICO® Score . Keeping the balance low is another credit booster because it helps your credit utilization, which is the second most important component of your credit score.

There’s no set time frame for how long it takes for a secured credit card to help you build credit. But opening an account and making timely payments can add positive information to your report that will benefit your score and possibly help improve it over time.

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.

Tips for Getting the Most Out of a Secured Credit Card 

A secured credit card can be an excellent way to build or rebuild your credit history and increase your credit score. You’ll create the most positive change by keeping a few tips in mind.

Pay on time

If you’re using a secured card to try to improve your credit, it’s very important to pay your bill on time, every time. Otherwise, in addition to late fees and penalties, you risk having late payments added to your credit report, which defeats the purpose of the secured card.

Watch your spending

Don’t forget about your utilization rate. FICO considers a good credit utilization rate to be less than 30%, so try to keep your card balance below 30% of your spending limit. To calculate this number, you can multiply your card limit by 0.3. Secured credit cards tend to have very low credit limits, so you shouldn’t plan to use your secured credit card for more than minor purchases. In some cases, you may have the option to increase your credit limit by paying a larger security deposit, but be careful not to take on more debt than you can handle.

Make payments in full

Contrary to popular belief, you don’t need to carry a revolving balance to boost your credit score. You can keep your credit utilization rate low and avoid hefty interest charges by paying your balance in full each month.

Track your progress

Monitor your credit reports regularly to ensure that your payments are reported correctly and that older negative items are removed on time. It’s also a good idea to periodically review all the information in your report to ensure that there are no inaccuracies. Ordinarily, you’re entitled to a free credit report once every 12 months from each of the three major credit bureaus: TransUnion, Equifax, and Experian. Due to the COVID-19 pandemic, you can access free reports from all three credit reporting agencies once each week through April 2022.

Prepare for the next step

After you’ve used your secured credit card responsibly for a while, the card issuer may automatically upgrade your account to a traditional, unsecured credit line. In this case, your credit limit typically increases, and the card issuer usually refunds your security deposit to you. Some card issuers, though, won’t refund your security deposit unless you close your account. Closing your oldest credit card account could hurt your credit score, so it may be smarter to keep the account open, even if you decide to apply for a separate, traditional credit card. 

Building Credit for the First Time Using a Secured Credit Card: Six Months to Your First Credit Score  

If you’ve never used credit before, you might not have a credit report at all, or you might have a credit report that doesn’t contain much information. In either case, the first step to attaining a credit score is opening a credit account. When you’re new to credit — for example, if you’ve never taken out a loan or had a credit card — it can be challenging to know how to begin. Because secured credit cards are typically available to people with poor or nonexistent credit, they can be a good starting point for establishing a positive credit history.

When you’re approved for a secured credit card, the account will typically appear on your credit report within a month. If you don’t already have a credit report, opening the secured credit card account will trigger the creation of a credit file for you.

Your First Credit Score

FICO is the most widely used credit scoring model. It pulls information from your credit report to generate your credit score, but you won’t get your first score from FICO until you’ve had an open account for at least six months. In other words, after two or three months of using your secured credit card, you’ll probably have a credit report, but not a FICO score. Although FICO dominates the credit scoring scene, there are other credit scoring models, such as VantageScore, that use different models to generate credit scores.

After six months or so, depending on the credit scoring model, you’ll be able to see your first credit score. Whether this score will be high or low depends on how consistently you’ve been using and paying off your secured credit card. It also depends on any other items on your credit report. For example, if you have other accounts that are past due or have been transferred to collections, your score will be lower than if you had only positive accounts. 

Improving Your First Score

Your credit score is based on several different factors. Your payment history is the most important component in calculating your score, so regularly paying your secured credit card bill is important. That said, even if your secured card activity has been exemplary, don’t expect your first credit score to be 850 (the highest possible score). 

Besides payment history and credit utilization, other things factor into your credit score, such as:

  • The length of your credit file: Six months of on-time payments on a secured card is good, but 24 months of on-time payments is better. Paying on time with multiple accounts for 24 months is even better.

  • The average age of your credit accounts: Keeping an open account in good standing for a long time leads to a higher credit score.

  • The diversity of your credit portfolio: Demonstrating that you have experience with different types of accounts, such as auto loans and credit cards, increases your score.

Unfortunately for credit beginners, there is no shortcut to excellent credit. If you continue to use credit wisely, make your payments on time, and avoid maxing out your spending limits, you’ll continue to see your credit score improve.

What Should I Look for in a Secured Credit Card?

Not all secured credit cards offer the same benefits, fees and features. When looking into applying for a secured credit card, it’s important to look for a few signs in order to pick the best secured credit card for your financial situation.

  • Additional Fees: Some cards will charge annual, transaction or other additional fees. Check to see if the secured credit card charges additional fees that other secured credit cards may not have. You want to make sure that fees won’t outweigh the benefits of a secured card.
  • Credit Bureau Reporting: Not all secured credit cards report your card activity to the major credit bureaus. If you obtain a credit card like this, it won’t be helpful to building your credit. Make sure the secured credit card you apply for reports your activity to help you build your credit.
  • Rewards and Benefits: Not all secured credit cards offer the same features. Look for a card that offers features that appeal to you and your spending habits, such as the ability to earn rewards points or offering free FICO® Score access.
  • Reliable Source: Make sure you obtain a secured credit card through a reliable and reputable source with great customer service in case you ever need assistance.
  • Check With Your Credit Union: Credit unions tend to offer fewer fees and lower interest rates than banks, so check with your credit union before seeking a secured credit card through another lender. You’ll also want to ask about the process involved with eventually graduating from the secured card to a regular credit card.

Which secured card is right for you?

There are a few things to consider when choosing a secured credit card: how much is the required deposit, how do you transition to an unsecured card (more on that below) and can you earn rewards?

One strong secured card option is the Discover it® Secured Credit Card, which requires a $200 deposit but comes with some good perks. You can earn rewards (2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, then 1%, and unlimited 1% cash back on all other purchases automatically), there's no foreign transaction fees and there's no annual fee.

If you're looking for a card that requires a smaller deposit, you might want to consider the Capital One Platinum Secured Credit Card. If you qualify for the low $49 or $99 deposits, you'll still receive a $200 credit limit.

Consider a Secured Credit Card to Rebuild Your Credit

It doesn’t take very long to get a secured credit card. You can use it to build or repair your credit by making all payments on time and keeping the balance low (or paying it off each month). Consider using Experian CreditMatch™ to find cards you may qualify for, or explore other alternatives to help boost your credit health if a secured credit card isn’t a good fit.

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