How to Build Credit With a Secured Credit Card

Secured credit cards help build your credit history and improve your credit score in multiple ways. 

Below are 5 steps that you can take in properly managing your secured credit card to ensure you are achieving the maximum credit boosting benefits available. 

Step 1: Choose 3 Secured Credit Cards and 1 Credit Builder Loan

To achieve a good credit mix, you should aim for 3 revolving accounts and 1 installment loan. 

The good news is that you can accomplish this using credit-building products. Opening 3 secured credit cards counts towards the 3 revolving credit lines, and a credit builder personal loan qualifies as an installment loan. Also check out our article, What Is a Secured Credit Card? if you want to know more about secured cards.

Opening all of these accounts at the same time has several benefits. 

The first is that if you apply for them all at the same time, you are more likely to be approved than if you had waited. Once the hard inquiry and account info hits your credit report, it could decrease your score temporarily, which makes subsequent approvals more difficult. 

The second reason to open all 4 accounts at the same time is to let them build history together. Each month they are open and in good standing, the payment history and account age portions of your score will increase. 

Just keep in mind you’ll need to have enough cash on hand to cover all three security deposits. Also take a look at how this can impact your score: How Much Will a Secured Credit Card Raise My Score? , Secured vs. Unsecured Credit Cards, or How Long Does It Take to Build Credit With a Secured Credit Card?.

Step 2: Limit the Credit Utilization Rate to 10% or Less

One of the biggest factors in calculating your credit score, beyond payment history, is the amounts owed. This portion of your score is determined by your loan balance and credit utilization on your revolving accounts. 

Credit utilization is calculated by adding up the balances on all of your credit cards and dividing it by the total credit lines on all of those cards. The resulting number is your credit utilization ratio and you can multiply that by 100 to get your credit utilization rate. 

For example, let’s say you have the following balances on your secured credit cards.

• Card 1 – $100 balance with a $500 limit
• Card 2 – $50 balance with a $300 limit
• Card 3 – $25 balance with a $250 limit

Your credit utilization ratio is calculated as (100 + 50 + 25) divided by (500 + 300 + 250) which equals roughly 0.17. Multiply this by 100 to get a credit utilization rate of 17%. 

Ideally, you should keep this rate to 10% or less to maximize the amounts owed portion of your score. 

To get the credit utilization rate lower, you can work on carrying less of a statement balance and take advantage of any credit line increases, especially if they are unsecured. In our above example, you’d only need to increase your credit limits by $600 to achieve a 10% utilization rate.  

Step 3: Pay More Than the Minimum Due Each Month

The biggest factor in your credit score, making up 35%, is your payment history. So it is imperative to build up this portion of your score and keep it there. 

Paying on time is the biggest factor. Even one 30-day late payment can tank your score. But that doesn’t mean you should wait until the due date to pay your statement. 

Even more importantly, when you pay is a secret scoring factor. It’s a little-known fact that you get a credit score boost from paying more than the minimum payment. 

If you’re only making the minimum payment on your credit card, it could indicate financial trouble. That’s why scoring models reflect this as a risk factor.

Step 4: Use the Card Regularly

If you have a bad credit history, you may be tempted to open a secured credit card and then throw it in a sock drawer never to be used. If you don’t ever use it, then you’ll never have to pay interest or risk overcharges or late payments, right?

Don’t do this. 

While it can seem smart to limit your temptation, not using the card at all actually works against your credit score. There are two reasons for this. 

The first is that a credit utilization rate of 0% actually decreases the potential points you earn for the Amounts Owed portion of your score. With zero debt, it is impossible to know if you can manage credit well or not. So the credit reporting agencies ding you for this behavior. 

The second reason keeping a zero balance is bad, is that many card issuers will stop reporting to the credit bureaus if there is no activity on this card. This often won’t happen until you have at least a few months of no activity, but when it does happen, it will hurt your credit score.

So unless you are working on paying down an existing balance on a secured credit card, it is best that you regularly use it. 

Step 5: Monitor Your Credit Score

How do you know if your secured credit card account is improving your credit score or not? 

You don’t if you are not monitoring your credit score. 

Luckily, many of the secured credit cards out there on the market actually offer credit monitoring services with their cards. They’ll let you know when any changes to your credit file have occurred and give you an estimate of what your credit score looks like. 

You can also use third-party services like Credit Karma or Credit Sesame to keep apprised of your credit file and what your score