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Achieving the score you want may take a year or more, but it all depends on which secured credit card you choose and how well you manage it. Check out our article, What Is a Secured Credit Card?, to know more about secured cards in general.
How Long Does It Take to Build Credit With a Secured Credit Card?
Generally speaking, it will take at least 3 months for you to see a moderate increase to your credit score, and 6-12 months to see a substantial increase to your score, but only if you properly manage your secured credit card account.
More specifically, if you have a thin credit profile, it is common to see a credit score increase of 25 points within 3 months. Increases of 50-150 points can happen within 6-12 months, if you manage your credit cards properly.
The exact time it will take for your score to increase to the level you are looking for depends on a number of factors. This includes the current state of your credit as well as the terms on your credit card.
The first thing to consider is how you are managing this secured credit card. If you are making on-time monthly payments and keeping your reporting balance low, then you should see a credit score increase sooner rather than later.
If on the other hand, you make even one 30-day late payment or carry a large balance on the card, then not only will it take longer for you to see a credit score increase, these actions could actually further damage your score.
For those that are starting with no credit, it is likely you will see substantial credit score gains right away. But these gains will begin tapering off unless you take additional actions towards building your credit like increasing your available credit and achieving a good credit mix.
For those who already have fair or better credit, the gains you’ll see from a secured credit card may be slow in coming. In fact, opening a new account will likely decrease your score, at least temporarily.
For those who have bad credit because of negative remarks (i.e. missed payments), it also might take a while for you to see improvement. This is because payment history is the largest chunk of your credit score calculation and negative remarks affect your credit for years.
The actual credit card itself can also have an impact on how quickly your score will rise. If the secured card doesn’t report to all 3 bureaus for instance, then not all of your credit scores will increase.
And sometimes it can take two or three months for the new account to be reported to the credit bureaus, which will, unfortunately, delay your credit score growth. You can also check out our article on apps if you’d like to check out some apps for building credit, The Best Credit Building Apps.
It is also important to keep in mind that a secured credit card can only help you build your credit if you are properly managing it as well as the other accounts and credit lines that appear on your credit reports. But that it is possible for it to build your credit, see here to find out just how much: How Much Will a Secured Credit Card Raise My Score?
What If You Have Bad Credit?
A secured credit card can be a great tool in building credit for those who have bad credit.
Before opening one, however, you should determine how much one could potentially help you or maybe consider other alternatives.
What is the biggest problem with your credit, or put another way, why do you have bad credit?
If it is because of missed payments, then you can improve your credit score with a secured card, it will just take a little time.
If the credit mix portion of your score is low because you don’t have enough revolving accounts reporting, then opening a secured credit card will boost your credit score sooner.
But, if your score is bad because your credit utilization is too high, then opening a secured card may only provide a small increase to your score if you don’t also work on paying down your other debts.
How to Use a Secured Card to Build Credit
Properly managed, secured credit cards can be a great way to build your credit. They are usually easier to get than unsecured credit cards, meaning that you can qualify even if you have a bad credit history or no credit at all.
And the security deposit necessary for opening a secured credit card and the often low initial credit limit can help hold you accountable for your spending as well as making on-time payments.
But how exactly does a secured credit card help you to build credit?
While this, in part, depends on the current content of your credit profile, below are 5 methods you can use for building credit with a secured credit card.
1. Get 3 Secured Credit Cards and 1 Credit Builder Loan
The ideal mix of credit is three revolving accounts plus one installment loan. If you have a bad credit history or no credit at all, you can start on this path towards a good credit mix by applying for secured credit cards and a credit builder loan.
These credit-building products often have lower credit score approval thresholds, and sometimes offer approval without the need for a credit check (hard inquiry).
And despite the fact that these two credit products are secured, they don’t report any differently on your credit report than an unsecured credit card account would.
So by opening these 4 credit accounts, you’ll boost the credit mix portion of your credit score (worth 10%). If you’re looking for some ideas on cards to get, check out our article, The Best Secured Credit Cards to Build Credit.
Thanks to easy approval of secured credit cards, you’ll avoid taking too big of a hit to the new credit portion of your score (worth 10%).
Now that you have these accounts, you can boost your payment history, worth
2. Keep Credit Utilization Under 10%
The second-largest portion of your credit score, worth 30%, is the amounts owed portion. This portion of your score takes into account the balances on your installment loans as well as the credit utilization on your revolving accounts.
For revolving accounts, credit utilization is calculated by adding up all of the balances on all of your credit cards and dividing it by the total of the credit limits on your account.
For example, let’s say you have 3 credit cards with the following stats:
- Card #1 – $800 balance and $1000 credit line
- Card #2 – $300 balance and $500 credit line
- Card #3 – $50 balance and $600 credit line
Your total balance across all three cards of $1150 divided by your total credit limit of $2100 equals a credit utilization ratio of .547 or a credit utilization rate of 55%.
To achieve the best results for your credit score, you’ll want to keep your credit utilization rate under 10%.
3. Always Pay ABOVE the Minimum Payment Amount
Paying more than the minimum monthly payment helps your score in two ways.
The first concerns your payment history. This portion of your credit is the most important as it makes up 35% of your overall credit score. By making at least the minimum payment on time every month, you’ll be maxing out the payment history portion of your score.
When you pay more than the minimum, you’ll be working towards building a better credit utilization rate. And you’ll be saving on interest rate charges.
Going back to our earlier example, let’s say the minimum payment on card #1 is $30, but you decide to pay $60 a month instead. If you don’t add to any of your credit card balances, then in 6 months, your utilization rate would be 37% instead of 46% (with a $30 minimum payment).
Anything that you can do to reduce the amount of credit card debt that you have will be good for your credit score.
4. If Applying for Credit Cards, Apply for All of Them on the Same Day
Using this hack can help your score in two different ways.
The first regards credit inquiries and the new credit portion of your credit score. For many types of loans, the FICO scoring model will lump together multiple hard inquiries together when it calculates your credit score.
So if you are shopping around for the best rate or need to open multiple loans (i.e. credit builder personal loan and auto loan), we suggest that you apply for all of them in one day because you then reduce the impact on your credit score.
Another good reason to do this is to increase your chances of approval. Credit score reporting isn’t instantaneous. It can take days for hard inquiries and new account information to appear on your reports.
So, once you have the approval for your loan in hand, go ahead and apply now for any other credit cards you need before the hard inquiry and other new account information for the credit card decreases your credit score.
Also Read: Secured vs. Unsecured Credit Cards
5. Monitor Your Credit Score
The most important way to build your credit using a secured credit card account is simply to monitor your credit report and credit score.
Keeping up to date on your credit report can help you quickly spot fraud and other types of errors in your credit reporting. And the quicker you spot them, the quicker you can get the issues corrected.
Monitoring your credit score also helps you better understand how the changes you make can affect your credit score.
It’s one thing for me (and other personal-finance-obsessed individuals) to tell that a higher credit utilization hurts your score. It is another to actually see for yourself how a $500 balance increase drops your credit score.
One resource to look for is credit monitoring. Whether it be something like Credit Karma or through your credit card issuer, these useful tools and resources can help you estimate how different changes can affect your credit score.
Things to Look For in a Secured Credit Card
Not all secured credit cards are created equal.
Some secured credit cards can be excellent tools for helping you build your credit. But others are designed in a way that seems like the card issuer just wants to drain you of money.
Before applying for a secured credit card and putting up the required security deposit, take a look at the fine print and compare the card’s features to other secured cards on the market. Do this to make sure that you are getting the best product for your credit needs.
What Credit Bureaus It Reports To
Does that secured credit card report to all 3 major credit bureaus?
If it doesn’t, then its ability to help improve your credit score is limited. If you are trying to build your credit, having 1 product that can help with all 3 credit bureaus is key.
Let’s say you are trying to build credit so that you can qualify for a home loan. You then take out a secured credit card. After a year, your TransUnion score has improved enough to qualify for the loan, but you get rejected because the financial institution pulled your Equifax score.
Having a credit line report to all 3 bureaus helps you avoid this scenario.
Now, if you have just one credit reporting agency giving you a poor credit score, then maybe getting a secured credit card that reports to just that credit reporting company might be useful.
Annual Fees and Maintenance Fees
In the secured credit card arena, annual fees and/or maintenance fees are nearly unavoidable.
So before you apply for the card, you’ll want to know exactly what the fees are and how often you’ll be charged.
Some cards come loaded with so many fees, it seems like the card issuer wants to make the maximum amount of money off of you that they can. Steer clear of these cards.
While building your credit is an admirable goal, you should never do so at the cost of your financial well-being.
Another factor to keep in mind is that these fees often come out of your security deposit, which can lower your credit limit and affect your credit score (through utilization).
For example, if you open a secured card with a $300 security deposit and the annual fee is $50, then your starting credit limit will only be $250.
Extra Features & Perks
It is rare for a secured credit card to offer any kind of rewards. Though there are a handful out there, that doesn’t mean that there aren’t other credit card perks to be found on these cards.
If you are building credit, a great card perk to look for is credit monitoring. Many credit card companies offer their customers some kind of report and/or score monitoring. Additionally, they may offer other kinds of resources and tools to help you better understand how credit works.
Another good feature to look for is the ability to upgrade.
Some credit card companies offer a secured version of their more popular cards.
So, after so many months of making payments and properly managing your credit, the card issuer may upgrade you to their unsecured credit card. Just be sure to read the fine print to find out what you’ll need to do to qualify for the upgrade.
Opening a secured credit card has the power to help you achieve good credit, but only if you properly manage the card as well as all other elements of your credit score (i.e. other accounts).
Hopefully, the tips and tricks we’ve provided here can help you choose the best secured credit card and allow you to improve your credit score faster.
Amanda Garland is a personal finance blogger living in Dallas, TX. 10 years ago she was living paycheck to paycheck and knew nothing about how credit works. She learned some hard lessons in her fight for financial stability. Now she has a friendly competition going with her husband to see who can reach a credit score of 850 first. She is also a poet, having obtained a Bachelor of Fine Arts degree in Creative Writing.