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Building Your Credit With a Secured Credit Card

a college student uses her secured credit card to build credit by making purchases at a university bookstore

Good credit lets you unlock the best interest rates on all kinds of financing, from personal loans to auto loans, home loans, and credit cards. But what can you do if your credit score isn’t so great at the moment?

A secured credit card is a simple way to repair bad credit or to start building credit if you’re at the start of your financial journey. Read on to find out how to use a secured credit card to build credit.

What Is a Secured Credit Card?

A secured credit card means your credit union holds some of your savings as collateral in case you miss payments on your credit card. The amount of money you provide might determine the credit limit on your card.

Aside from the cash deposit, a secured credit card works just like a regular credit card.

The funds used to secure your credit card could be:

  • In your regular share savings account
  • In a share certificate account
  • A cash deposit you make to secure your credit card

Secured credit cards are specially designed for people who want to get themselves onto the financial map for the first time, or who have made a few missteps and need to turn their credit around.

How A Secured Credit Card Works

Here’s what you need to know about getting and using your secured credit card:

  • You apply for your credit card and select which funds will be used to secure your card.
  • Your credit union will hold your funds for you while your secured credit card is active.
  • You’ll pay an interest rate, known as the annual percentage rate (APR), on purchases made with your credit card.
  • Your APR will be determined by your credit score: The higher your score, the lower your rate.
  • Once approved, you can start making purchases and timely repayments on your credit card!

Tips for Using a Secured Credit Card to Build Credit

Building credit isn’t rocket science but there are definitely some things you can do to make sure your credit starts improving as quickly as possible–and keeps going in the right direction. 

Check Your Lender Reports the Payment History 

Make sure your credit union or other financial institution reports your payment history on your secured credit card to the credit reporting agencies. Here’s why:

  • Credit agencies use information about your monthly payments to calculate your credit score. So, if your lender doesn’t report your activity, your score won’t improve.
  • Radiant Credit Union will regularly report your good payment history to the credit agencies and your credit may start to improve after a few months. 
  • Radiant Credit Union will upgrade your credit card over time and this means you’ll get a better APR. Eventually, you’ll be able to get an unsecured credit card.

Pay On Time Each Month

You must make at least your minimum payment on time each month, so your credit score goes up and not down. Here’s what to do:

  • When possible, try to pay more than the minimum amount due–or pay off your entire balance each month. 
  • Start by making small purchases only so that you’ve got the best chance of always making your payments on time.
  • If you know you can’t make a payment, reach out to your credit union and see if they can help.

Don’t Max Out Your Credit Card

Another factor that goes into determining your credit score is how much of your available credit you use. Here’s how to use your secured credit card to build credit:

  • The amount of your available credit you use is called the credit utilization rate, or debt-to-credit ratio. 
  • To maintain good credit, experts recommend you use less than 30% of your available credit across all your accounts. 
  • So if your secured credit card has a limit of $1000, you should use just $300. If you constantly run a balance of, say, $800, your credit score may suffer.  

Next Steps: Applying for a Secured Credit Card

Before you apply for your secured credit card, it’s a good idea to find out your credit score so you know what range you’re in and what APR you might get. If you feel you’re in a good place, then gather up your documents and start shopping around for the best deal!

Remember–credit unions can often offer lower rates because they’re not-for-profit organizations. This means they can give their revenue back to members in the form of low-interest loans and credit cards as well as high-yield savings accounts.

Click below for more tips on how to get approved for your next credit card!

HOW TO APPLY FOR A CREDIT CARD AND GET APPROVED