Wondering How to Build Credit? This Card Could Be the Answer

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You can get a secured credit card even if you have poor credit or no credit history at all. Learn how these cards are perfect for brand-new credit users. 

It’s really important to earn a good credit score. It can make it a lot cheaper and easier to get a mortgage or a personal loan if you have good credit. You’ll also be able to access better credit cards with generous rewards programs, and will have more choices of where you live, since landlords often check your credit history.

Unfortunately, it can be really frustrating to build credit. That’s because you need to have access to credit to show you can be responsible with it — but most lenders don’t want to give you access to it until you’ve already proven yourself.

Fortunately, there is a simple solution you could try out.

Could a secured credit card help you build your credit score?

If you cannot get a loan or credit card to help you begin building credit, a secured credit card could be one of your best options.

A secured card is a special kind of credit card. Like most credit cards, you are given a line of credit. You’re allowed to charge up to a set amount, such as $250 or $500. But you don’t have to charge that much all at once.

As you charge on your card, you accrue a balance and you are sent a bill each month. If you pay your bill in full when the statement comes, you won’t owe interest. You don’t have to pay the full amount, but you do need to make at least minimum payments. As you repay the money you’ve used for purchases, the credit becomes available to you again. This is called a revolving line of credit.

The big difference between a secured card and a regular credit card is that you have to put down collateral for the secured card. Specifically, you will need to make a deposit in a special account with the credit card company. Usually, this is in the amount of your credit line. So, if you got a $500 credit line, you would need to put $500 into a special account.

The money protects the card issuer against losses. If you don’t pay the card balance, your credit card company can take the money acting as collateral. The card issuer cannot lose (since you can only charge up to the amount you deposited), so it is very easy to get approved for a secured card. Pretty much anyone can get one, even people with a very recent bankruptcy on their record.

Once you have the card, you can make small charges on it each month — being careful to pay on time and keep your credit utilization ratio below 30% (which means you don’t want to use more than 30% of your available credit). Your record of on-time payments will help you earn a good credit score, as will your low credit utilization ratio. Payment history and credit used are two of the most important factors in the credit scoring formula.

How to find the right secured card

Getting a secured credit card is a great way to prove you are a responsible borrower. But how can you decide which credit card is right for you? You’ll want to look for a secured card offering these features:

Reporting to the major credit reporting agencies: This is key because you want your payment history and credit use reported so you can show you’re a responsible borrower.No fees: There are good secured cards out there that won’t charge you fees to be a cardmember.Rewards: Some, but not all, secured cards offer rewards for spending.Access to credit monitoring services: You can use these to track your progress building credit.Ability to graduate to an unsecured card: If your card can transition to an unsecured one, you can get your money back while keeping your card open so you will develop a longer credit history (that’s a positive factor in determining your credit score, too).A low APR: This only applies if you plan to carry a balance at any point.

Research your options today and consider opening a secured credit card if building a better credit score is on your to-do list.

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