Building a credit history might seem a lot like applying for an entry-level job, only to find out the position requires years of experience. Just how you’re expected to already have experience to gain experience, a lot of credit-building methods expect you to have credit already.
On the bright side, building a credit score from scratch is easier than you think.
Secured credit cards are one of the most popular options for credit building. They’re not like debit cards or prepaid gift cards — secured cards are real credit cards. You just have to put down a cash deposit to get one. And they can help you start a credit history, because most secured credit cards report to the major credit bureaus.
Here’s what you should know about getting a secured credit card to build your credit.
How is a secured card different from a “normal” credit card?
The biggest difference is the deposit you make on a secured card. This refundable deposit is what secures the card. That means if you don’t pay your bill, your credit card company can still get the money you owe by taking it from your deposit.
Here’s the breakdown on how secured credit cards work:
An unsecured credit card is just a regular credit card that does not require a deposit.
All those ads for travel rewards and cash back cards? They’re advertising unsecured cards, but you probably won’t hear them called that outside of articles like this one. You almost always need a credit history (and usually a good score) to qualify for an unsecured card.
While the biggest difference between secured and unsecured cards is the deposit, it’s not the only one. Other typical differences between an unsecured card and a secured card include:
Most of the time, yes. However, not all secured cards report to the major credit bureaus.
The last thing you want is to spend months managing your card only to find out your card isn’t helping your score. Make sure the card you choose reports your payments and credit usage.
It’s pretty common for cards to mention if they report your activity. If you’re looking at a card and don’t see credit reporting, go ahead and ask. Asking only takes a few minutes chatting with customer service and could save you time on your journey to strong credit.
The easiest way to build your credit is to use your credit card responsibly.
What does that mean?
You should follow these four rules to build credit with a secured credit card:
Pay on time.
Payment history is the top factor in your credit score. Missing payments is an easy way to crash your score into the ground. Pay on time, every time. Set up an automatic payment if you have trouble remembering your due date.
Keep accounts open.
A long credit history shows lenders you know what you’re doing with your money. They’ll consider account ages when deciding to lend you money or give you a new credit card. Even if you’re not using an old credit card, keeping the account open could help your score.
Watch your credit utilization.
Credit utilization is a fancy way of saying how much credit you’re currently using, and it’s a big player in your credit score. Your utilization ratio is your current balance divided by your credit limit. So, let’s say you have a $200 credit limit. You spend $100, so your utilization rate is 50%. The lower the better, but aim to keep it at least under 30%.
Don’t apply for every card available.
Your score gets a hard inquiry each time you apply for a credit card. Too many hard inquiries hurt your score and there’s no reason to apply for a bunch of cards at once. Be smart about applying — find one card that fits you and apply.
There might be fewer options for secured cards, but there’s still enough to waste a lot of time looking at them. You should definitely do your research to pick the right option, but we suggest starting with these:
Capital One Secured Mastercard
The Capital One Secured Mastercard has some of the lowest minimum deposits around. Starting at $49, the Capital One card is great if you don’t have a lot of cash to spare. It makes it easy to start building credit and with no annual fees, it’s one of the most affordable options you’ll find. That $49 minimum deposit, by the way? It gets you a $200 credit limit. You’re not limited to the amount you put down. Get access to even higher credit limits with no additional deposit after 5 months of on-time payments.
Discover it Secured
Most secured cards don’t offer rewards. Most, but not all. The Discover it Secured credit card gives you 2% cash back at gas stations and restaurants (up to the first $1,000 you spend there each quarter). You’ll get 1% cash back on everything else. Earn rewards automatically as you use your card.
There’s no annual fee for the Discover secured card, so you won’t have to pay extra just to have the card. The minimum opening deposit is $200, which is also the starting credit limit. A bigger deposit gives you a bigger credit limit.
Building a credit score from scratch takes time. Expect to wait about six months before you start seeing a credit score. Improving your score takes even longer.
Think of your credit score as a houseplant. It takes some time to start, but with regular care, it grows. Then you need to keep watering it regularly to keep it healthy. If you neglect it, it’s going to take a while to get healthy again. Likewise, on-time payments and good credit usage keep your score growing strong.
Secured credit cards aren’t the only way to build credit. Other options for credit building include: