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Do you have a credit score that you are trying to reach? If so, you are probably wondering how far a secured credit card can get you towards reaching that goal.
While the exact score rise will depend on the individual makeup of your credit and overall financial well-being, you can expect something close to a 200 point increase to your credit score over twelve months.
To help you figure out exactly what to expect, we will explore the different factors that impact your credit score as well as how a secured credit card can help and how to choose the best card for your unique situation.
How Much Will a Secured Credit Card Raise My Score?
If you properly manage your secured credit card, you could see a 200 point increase to your credit score within 12 months. If you have bad credit, a score in the 500s or below, opening three secured credit cards and a credit builder loan can get you into the 700s within 12 months.
The potential for a credit score increase will only happen if you make on-time payments every month and if you keep your credit utilization ratio low. You’ll also need to do a good job of managing the other aspects of your credit as well.
How much your credit score will increase and how fast will depend on what your credit score looks like and the factors that are currently bringing your score down.
For those starting with no credit, credit score gains may initially be fast and substantial. In as little as 3 months, you can go from having no score to a credit score in the 600s.
For those with poor credit, improvements to your credit score may be slower at first, but by the 12-month mark, the change will be much more significant.
On the other hand, if you fail to manage this secured card properly, or poorly manage the other credit lines on your credit reports, your credit score may not improve at all.
How Do Secured Credit Cards Help Build Credit?
A secured credit card account can help you build your credit in multiple ways.
For instance, let’s say that you are just starting out on your credit journey and have only a loan account reporting (i.e. student loan). Qualifying for an unsecured credit card may be difficult, so you decide to start with a secured card.
You put a $500 security deposit down in exchange for a $500 credit limit.
If you pay your statement balance in full and on time every single month, this will provide a boost to the payment history portion of your score, which has the biggest impact on your credit score (35%).
Next, you decide to only charge your $50 water bill to the card each month. This gives you a utilization rate of only 10%, which is the ideal level for maxing out the credit utilization part of your score.
For each month you have the secured credit card account open, you’ll be building your length of credit history. Also check out our article, How Long Does It Take to Build Credit With a Secured Credit Card? for more information on the timeline for this.
Since you already have an installment loan, adding a revolving account (secured credit card) will improve the credit mix portion of your score.
Now, if you have bad credit, how a secured credit card can help your credit score changes a little bit.
Why do you have bad credit?
If you are carrying too much debt, a secured credit card can help your utilization rate, which will improve your score, but you can supercharge your progress by also working on paying down your existing debts. Aim for a utilization rate of 10% or less for best results.
When you’ve missed a monthly payment on a bill or credit line, it can really damage your score. And these late/missed payments or collections will, unfortunately, remain on your credit report for a while.
By paying your new secured credit card statements on time every month, as well as all other credit lines, you will be able to build your credit score back up.
Now, let’s look at the worst-case scenario for a minute.
Your bad credit comes from a bankruptcy, where the result was the closure of all of your existing accounts.
When it comes to your credit, you’ll need to start over from scratch and with your bad credit history, you’ll likely find it difficult to get banks to trust you. So, how do you build credit fast?
Like we hinted at above, a good solution would be to open one credit-builder account and three secured credit cards. These are products that you can easily qualify for even with bad credit, and when used properly, this method can get you to a good credit score within one year.
What to Keep in Mind When Considering a Secured Credit Card?
Before opening a secured credit card account, there are a few things that you should consider.
The first is whether or not a secured credit card is the right choice for you and your credit score. If you’re unsure what a secured credit card is or want to know more about it, take a look at our What Is a Secured Credit Card? or Secured vs. Unsecured Credit Cards articles for more information.
What is your current credit score? Why are you trying to raise your credit score? What are the current factors that are negatively impacting your credit score?
The answer to these and other questions can help determine whether or not a secured credit card is the right course of action.
If, for instance, you already have good credit and you are looking for a small boost, then opening a secured credit card is not the best idea. You can qualify for unsecured credit cards, so you don’t need a secured credit card.
If you have no credit, then opening a secured credit card is a great option for helping you to establish credit. You can also consider opening a credit builder loan account as well to help you raise your credit score faster.
When you have a bad credit score because of a high utilization rate, opening a secured credit card might help you raise your score, but you should also consider paying down your existing credit card debts as well.
Trying to prove you can handle large debts is also a poor use for opening a secured credit card as these accounts usually come with low initial credit limits.
Another important factor to consider before opening a secured credit card is the terms offered by the credit card company.
What are the fees they charge? Does the card have rewards? Do they report to all three credit bureaus? Is there a path towards an unsecured card available?
Not all secured credit cards are created equal and knowing the answer to these questions can help you filter out the good cards from the bad.
A secured credit card account that charges you hefty monthly maintenance fees and offers you zero rewards or perks in exchange, is not a good card.
Or a card that doesn’t report to all three credit bureaus may limit your credit score growth.
An ideal secured credit card would offer low fees, substantial perks/rewards, and a path for upgrading to unsecured. Here is our list of best secured cards if you’re interested: The Best Secured Credit Cards to Build Credit.
Will Increasing My Secured Credit Card Limit Help My Credit Score?
In most cases yes, credit limit increases will help increase your credit score.
This, however, only works if you don’t use that increased credit limit as a reason to increase your spending.
See, your credit limits are an important factor in calculating the credit utilization part of your score. This is done by adding up all of the balances on your revolving credit lines and dividing them by the total credit limits.
To keep the example simple, let”s say you only have one revolving account (your secured card) with a $500 limit and a $200 reported credit card balance. This gives you a credit utilization rate of 40%, which means you are currently using 40% of your available credit.
Now, if you raised the limit on that card to $1000, then your credit utilization rate drops to 20%. This is great news for your credit score since a lower utilization rate equals a higher score.
Before raising your credit limit, you should first check with the card issuer to make sure that there is not a hard pull of your credit involved.
The Best Secured Credit Cards in 2021
There is no shortage of secured credit cards available on the market. And each has their own features and drawbacks.
Some of the best cards currently available all seem to feature the same perks and resources.
The good features to look for include rewards earning, no annual fees (or other fees), reasonable interest rates, a path towards upgrading to unsecured, credit monitoring, and other perks.
Below we take a look at 3 secured credit cards offered by 3 different card issuers and evaluate the perks versus the drawbacks of each card.
Bank of America Customized Cash Rewards Secured
It can be difficult to find a secured card that offers rewards of any kind. But this secured credit card offered by Bank of America provides cardholders with an unprecedented 3% cashback on the category of their choice.
You will need to select your earning category before you begin spending though.
You’ll also earn an automatic 2% cash back on grocery store purchases and shopping done at wholesale clubs. As well as 1% cashback on everything else.
This card has good approval rates for those with bad credit, but the minimum security deposit on this one is a little high at $300.
Here are some of the other key features of the card:
- 23.99% variable APR
- No annual fee
- Refundable deposit
- Review your FICO score for free
Discover it Secured
Just like the unsecured card, the Discover it Secured offers cardholders a rewards rate of 2% cashback. Now, it is important to note that this 2% is only in certain categories that rotate each quarter and you will need to opt-in every time.
And they still offer 1% cashback on all other purchases.
On top of that, in the first year you hold the card, Discover will match your cashback earned. So, if you earn $200 in cashback the first year, Discover will double it, making your total $400.
Another great feature of the card is the quick ability to upgrade to the unsecured card. Starting at the 8-month mark, Discover will begin doing automatic reviews of your account to see if you are eligible for an upgrade to the unsecured Discover It.
Some other great features this credit card offers are:
- 22.99% variable APR
- No annual fee
- Reports to all three credit bureaus
- Reduced APR balance transfer offer
The Self Visa Credit Card is designed to work in conjunction with the Self Credit Builder account. So, if you opened a Self credit builder installment loan to try and improve your score, their secured Visa might be a good next step.
This card is tied to your credit builder account. The downside is that you can’t qualify without first having a credit builder account open for at least 3 months and having an unlocked balance amount of $100.
The good news is that you don’t have to pay an additional security deposit. Instead, you get to choose the portion of your unlocked credit builder funds to transfer over to your secured credit card.
Additional features of this card include:
- 23.99% variable APR
- No hard credit inquiry
- Set your own deposit/credit limit
- $25 annual fee
For more details on his card, read our Self Credit Card Review.
Choosing the best secured credit card for your situation is no easier than choosing any other credit product. You want a card that is best designed to help you on your journey towards achieving a good credit score, or hey, an excellent one.
Some patience is needed when building credit and the same applies to choosing and utilizing a secured credit card. You can raise your credit score by several hundred points, but it might take some time.
Considering all the benefits you reap from having a good credit score, it will be time that is well spent.
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.