How do secured credit cards build credit?

Secured card basics

A secured credit card is a type of credit card that requires a refundable cash security deposit upfront. Unlike unsecured or traditional credit cards, where your limit is based on your credit profile, a secured card's limit matches your security deposit. For example, a $200 security deposit would give you a $200 credit limit.

Who might be a good fit for a secured card? These cards are typically best for people with limited credit history or looking to rebuild a low credit score, like students, recent graduates, or those who have faced financial hardships. That's why they don't usually require a traditional credit check or a specific credit score for approval.

You'll have to apply for a secured card like any credit card. But once you're approved, you can start establishing a positive credit history by using it to make everyday purchases, like buying groceries or gas and paying your balance off in full every month.

How much can a secured card impact your credit?

A secured card works like a regular credit card — it gives you purchasing power and, with responsible usage, can improve your credit profile. The amount your score improves is mainly decided by the five factors that make up your credit score:

1. Payment history (35%): This is the most important factor. Paying your bills on time will help your score, while late or missed payments will hurt it.
2. Amount of debt (30%): If you owe a lot compared to your credit limit, it can lower your score. That’s why it’s best to pay off the balance on your credit cards as quickly as possible.
3. Length of credit history (15%): A longer credit history can improve your score because it shows lenders that you’ve managed credit over time. If you’re new to credit, using your secured card regularly and keeping the account open will help boost your score eventually.
4. Amount of new credit (10%): Applying for too much credit in a short period of time can hurt your score.
5. Credit mix (10%): Lenders like to see that you can responsibly manage different kinds of debt. That’s why having a mix of credit, like a car loan, mortgage, or credit card, can improve your score.

If you're considering opening a secured credit card with opensky, cardholders typically see an average 47-point increase in their credit score within the first six months.¹ Plus, all three of our options have an 89% approval rate.²

Tips to build credit with a secured card

A secured card can help boost your score and unlock better credit options and rates for future loans. Here are some tips you can follow to get there even faster.

1. Choose the right card

It’s best to use a secured card that reports to all three major credit bureaus—Equifax, Experian, and TransUnion. That way, each of your credit reports has the same accurate information, and you'll never have to wonder what lenders will see when you start applying for different types of credit down the line.

2. Make small purchases regularly

Using your secured card regularly and paying off the balance on time is critical to building your credit. To establish good habits, start with small purchases and pay them off quickly, like paying for a monthly streaming subscription or a daily coffee.

3. Keep your credit utilization low

Your credit utilization ratio is the percentage of your available credit that you use. Most financial experts recommend using no more than 30% of your limit to demonstrate good credit habits and improve your credit score.

4. Pay on time

Always pay your credit card bill on or before the due date. This will help you avoid late fees and potential negative marks on your credit report. Setting up auto-pay is one way to ensure your payments are always on time. That way, you can make payments without having to manually enter all your information each time.

5. Try to pay your balance in full

Carrying a balance on your card while making new purchases can increase your credit utilization ratio. This might impact your overall score and make it harder to achieve credit-building progress. If you can't pay your bill in full each month, try to make the minimum monthly payment or more and pay down the balance as soon as you can.

6. Monitor your credit

Reviewing your credit score and reports can help you track your progress and spot potential errors. You can check your credit reports from each of the three major credit bureaus once a year for free at AnnualCreditReport.com.

7. Consider increasing your deposit

If you have a low credit limit, consider adding more to your security deposit to increase it. Doing so can lower your credit utilization and potentially open up better credit options and perks. Just be careful not to overspend.

8. Upgrade to an unsecured card

Many secured cards offer an upgrade path to an unsecured card as your credit improves, and some even do this automatically after a series of on-time payments.

If you feel you've outgrown your secured credit card and decide to close the account, you'll typically get your full security deposit back, as long as your account is in good standing.

However, keep in mind that closing a credit card account can reduce your available credit and negatively impact your credit score. That's why it's best to keep all your credit card accounts open, even if you no longer use them regularly.

In summary

Whether you're building or rebuilding your credit, a secured card can help you reach your financial goals. Taking small steps like making regular purchases, keeping your credit utilization low, and paying your bills on time will help you gradually improve your credit score. Don't get discouraged—your score is influenced by factors like your overall payment history, amount of debt, and the length of your credit history, so consistency is key. Stay the course, and you’ll get there!

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¹ Based on Q4 2024, 65% of opensky customers increase their score by 47+ points after 6 months.

² Based on Q4 2024, opensky Secured Visa® Credit Card average approval rate is 88.93%. Individual approval results may vary.