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No Credit? Start With a Secured Credit Card

Secured Credit Card
Mark Cappel
UpdatedNov 1, 2023
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    4 min read
Key Takeaways:
  • Shop around for the best deal on a secured credit card.
  • Pay your bill on time every time!
  • Keep your credit utilization low.

Are you a newbie to the credit world? Maybe you don't even have a credit history and no credit score.

One of the first steps in building a credit history and credit score is to start with a secured credit card.

What is a secured credit card?

What’s a secured credit card? You give a credit card issuer a deposit of $250 to $5,000. This is the bank’s "security" — in other words, what the bank falls back on if you prove to be an unreliable borrower. The bank issues you a card with your credit limit, the amount of the security. You use this card like you would any credit card and pay your bill on time when due.

After six months or so, you will go from no score to some credit score. If you already have a credit score, paying your secured credit card on time for 6 months will improve your score. At this point, you can apply for a new, different, non-secured account. A card from an oil company or retailer would be a good second card to improve your account diversity.

6 ways to supercharge your secured credit card

A secured credit card is a great way to start building or repairing your credit history. Here are ways to make a new secured credit card work even harder for you:

#1: Pay on time, pay on time, pay on time!

The biggest influence on your credit score is your payment history. Your on-time payments are rewarded with a higher score. Late or missed payments result in harm to your credit score. It’s simple: Make your secured credit card payments on time every time.

#2: Make more than your minimum payments

Making minimum payments on a credit card is a great idea for credit card issuers because it results in consumers paying a large amount in interest payments. It’s a terrible idea for consumers for the same reason. Making more than the minimum payments, or ideally paying-off a credit card’s balance each month, will save you money.

#3: Do not max-out this card (or any others)

When it comes to your credit score, how much credit you use is almost as important as your on-time payment history. Maxing-out your credit card results in a credit score penalty, so don't do it. Unfortunately, we don’t know how much is too much when it comes to credit utilization. Is it 50%? 75%? 90%? No one outside of the credit scoring companies knows where the line is for certain. If you must max-out your card, make sure you have a plan to pay-down the balance quickly to limit the harm to your score.

#4: Shop for the best deal in secured credit cards

Shop around for the lowest fees and interest rate in a secured credit card. You might wonder why we don’t share the name of the bank with the best secured credit card. Banks change credit card offers often, and the best deal today may be beaten by another bank tomorrow. This is one time in your life where shopping is the answer to your problem.

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#5: Pay off your other debts

Lenders look at your financial health as a whole when deciding whether to approve your loan application. One simple measure lenders use is your debt-to-income (DTI) ratio. Eliminating as many debts as possible lowers your DTI, and automatically makes you a more attractive candidate than someone with a high DTI.

#6: Create and stick to your budget

A household budget is like a map or set of directions. When you have and stick to a budget, you’ll find your credit history will improve without worrying about it.

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Bills Action Plan - Getting a secured credit card

Shop around for the best deal on a secured credit card. But building your credit doesn't end when your secured credit card arrives in the mail. You have to pay your bills on time, reduce your debts, and stick to a budget to see your score soar.