How Much Will a Secured Card Raise My Credit?
Secured credit cards can help improve your credit score, but how much do they really help?
Contributing Writer at Tally
December 23, 2021
Whether you're just getting started with credit or have less-than-perfect credit, you may find it hard to get approved for a loan or a regular credit card. Fortunately, secured credit cards give people the opportunity to build or rebuild credit without the credit card issuer taking on unnecessary risk.
If you’re wondering, "How much will a secured card raise my credit?," find out the ins and outs of a secured credit card and a few other alternatives below.
What is a secured credit card?
A secured credit card works like any other credit card: it has a credit limit and an interest rate, you can swipe it anywhere major credit cards are accepted and you make monthly payments on it. However, there's one key component that differentiates a secured card: the security deposit.
With a secured credit card, you must pay a security deposit, which also counts as your credit limit. For example, if you have a $500 credit limit, you must pay a $500 security deposit. If you fail to repay your debt, the credit card issuer can take your deposit.
Secured credit cards are designed for people with bad credit or no credit, which are typically those who can't get approved for traditional credit cards. The cash deposit reduces the credit card issuer’s risk.
As you use your secured credit card, the credit card issuer reports your balance and payments to all three main credit bureaus — Equifax, Experian and TransUnion — which can help improve your credit score.
How can a secured credit card improve my credit score?
Secured credit cards can help your FICO credit score in several ways, including:
Establishing credit: If this is your first time using credit or it's been over seven years since you last used credit, you likely have no credit history or credit score. Few lenders or credit card companies will take the risk of issuing unsecured credit to someone with no credit history, but a secured credit card issuer will. This can help you establish a credit score and get you on your way to unsecured credit.
Improving payment history: If your credit report shows a spotty credit card payment history, you likely can't get a regular credit card. However, a secured credit card issuer may offer you a card and help you establish a good payment history and build your credit score.
Lowering your credit utilization: If your credit utilization rate — your credit card balances relative to your credit limit — is high and dragging your score down, a secured credit card can help lower this, just as an unsecured credit card would. Say you have one credit card with a $1,000 limit and a $750 balance. This would be a sky-high 75% credit utilization ratio, which could hurt your credit score. If you get a secured credit card with a $500 limit, this would bring your total credit limit to $1,500 and reduce your utilization to 50%.
How much will a secured card raise my credit?
The impact a secured credit card will have on your credit score depends on whether you're just establishing credit or if you're trying to fix bad credit.
If you need to build credit due to having no credit score or credit history, a secured card can have a relatively quick impact on your situation. Once you receive your secured credit account, it will appear on your credit report, establishing your initial score.
Use the card responsibly for about six months, and you could see a dramatic increase in your credit score. How much will a secured card raise your credit in those six months? That will vary by person.
Fixing bad credit
A secured credit card can also help establish a solid payment history if you have bad credit. However, the impact will be slower than someone who's just building credit, because the negative marks on your credit report will continue to pull your score downward and offset some of the gains from the secured credit card.
You can expedite the process by taking care of your bad debt, including paying it off or negotiating a settlement. Otherwise, you simply have to wait until the bad debts get older and the impact lessens.
After seven years, the majority of bad debts, including late payments, are deleted from your credit report, essentially giving you a fresh start. Keep in mind, even though the debt is not on your credit report, you still legally owe that money to your creditor.
The process of fixing poor credit with a secured credit card could take a year or longer, depending on how low your FICO score is and how recent the negative marks on your credit report are.
How can you raise your credit score with a secured credit card?
Yes, a secured credit card can help you get good credit, but you must use it properly in order for it to do so.
You can use the secured credit card to pay for things you'd otherwise use cash for, like lunch, utility bills, groceries and other budgeted items. Avoid using it for unbudgeted expenses. When you pay the balance in full before the due date, the credit card issuer will report these on-time payments to all three credit bureaus.
Repeat this process of charging and paying in full each month, and you may start seeing credit score increases in just a few months, depending on other variables.
Are there alternatives to a secured credit card?
A secured credit card isn't right for everyone. Maybe it's because some of them come with annual fees or maybe some people just don't trust themselves with credit card debt. Regardless of the reason, there are some alternatives to consider.
Credit builder loans
Credit builder loans are specialized personal loans where the bank approves you but doesn't immediately give you the cash from the loan. Instead, it puts the cash in an escrow account while you make payments with interest.
As you make payments, the bank reports these to the credit bureaus, which may increase your credit score. After you've paid off the loan, the bank releases the funds to you.
Becoming an authorized user
If you have a close friend or family member with good credit and a credit card in good standing, you could ask to be an authorized user on their account. This gives you limited access to the account, and you may get a card issued in your name.
The important thing is the account may show on your credit report, including the on-time payments. This positive credit history can quickly impact your low credit score. However, if the account holder has a late payment or uses all of their available credit, it could also negatively impact your credit.
Building your credit takes time
Rome wasn't built in a day, and neither is a good credit score. Yes, you can use a secured credit card to build credit from scratch or to rebuild it if you have bad credit. However, both instances will take some time, so plan to work on this for six months or longer.
You can speed up the process by sprinkling in some other credit-improving methods, such as a credit builder loan or becoming an authorized user on someone else's card.
If credit card debt is holding you back, the Tally† credit card debt repayment app can help. Tally helps people manage their credit card payments and offers eligible users a lower-interest personal line of credit they can use to efficiently pay off higher-interest credit cards.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.