How to Use a Secured Credit Card to Rebuild Credit

If you’re struggling with low or outright bad credit, it’s guaranteed to be a frustrating situation. However, there is help and hope available. You can rebuild your credit, and a secured credit card can be one of the best ways to achieve that.

What Is a Secured Credit Card?

There are several different types of credit cards out there today. One specially designed for those with no, low, or bad credit, is the secured credit card. It differs from traditional credit cards in a few areas.

Here are three examples of how secured cards are different:

  1. You’re required to put a deposit down on the card.
  2. Your deposit usually determines your credit limit.
  3. You are almost always able to transition to a traditional card in the future.

You can think of a secured card as being similar to a credit builder loan in which you have to provide collateral to the lender to offset risk.

In this case, your collateral is a deposit of cash, which usually (but not always) doubles as your credit limit. The deposit will sit in your account, untouchable, until a future date specified by the card issuer.

In terms of appearance, a secured card looks just like an unsecured card. There is no visual difference between the two, and you can use your card at any location that accepts that type of card (Visa, MasterCard, Discover, etc.).

How to Use a Secured Credit Card to Rebuild Credit

One of the most enticing aspects of getting a secured credit card is the chance to rebuild your credit. Here are five tips to help you improve your credit score as quickly as possible.

Tip #1: Use the Card

It does you no good to get a secured credit card and then not use it. Make multiple small purchases every month and then pay them off. Take caution and make sure that you do not overspend. Interest rates tend to be higher on secured credit cards, so carrying a balance from month to month may incur costly interest fees.

Using your secured credit card will keep the account open and demonstrate to lenders that you can use the credit card without overspending.

Tip #2: Pay Your Bill Every Month

Do everything in your power to pay off your entire credit card balance every month. You will be able to avoid interest charges and show lenders that you only spend within your means.

If you’re unable to pay off the entire balance, make sure you at least pay the minimum required payment each month on time. If you are late on a payment or miss a payment entirely, your credit score will decrease and it will take some time for your score to recover.

FAST FACT : Most negative information such as late payments, missed payments, or accounts that have been sent to collections will remain on your credit report for approximately seven years.

Tip #3: Monitor Your Credit Utilization

The amount of available credit you use has a big impact on your score even if you’re making payments on time every month. It’s recommended to not use any more than 30% of your total credit limit or less. As long as you keep your balance low, you should see an improvement in your credit score over time.

Tip #4: Don’t Overspend

Having a credit card can be liberating and even exhilarating. However, you need to resist the urge to spend too much. Yes, you should use your card, but overusing it can lead to major damage if you aren’t able to keep up with the payments.

Tip #5: Get More Than One

It is worth considering applying for two or even three secured cards (so long as you can afford the deposits). One card can help you start to make progress, but two or three could rapidly accelerate the rebuilding process.

Of course, you need to make sure that you’re able to make payments on all the cards you apply for, so stick to small amounts that you can pay off every month.

As a note, don’t apply for several cards at the same time. Each application is a hard inquiry into your credit, which drops your score temporarily. Multiple applications in a short time can drop your score a surprising amount, plus it looks like you are desperately searching for cash, which can be a red flag for card issuers.

5 Reasons to Get a Secured Credit Card

There are several ways that secured credit cards can be a benefit to you and your financial wellbeing. Here are some examples.

1. You Can Reestablish Your Credit and Raise Your Score

With the right card issuer, your monthly payments will be reported to the three main credit reporting agencies: Experian, Equifax, and TransUnion. As long as you make payments on time each month, your payment history will improve and you will see an increase in your credit score.

With that being said, not all card issuers report to all three credit reporting agencies. Some don’t report your payments at all. When you’re shopping for a secured credit card, verify that the issuer reports to all three agencies.

2. Bad Credit or a Lack of Credit Does Not Automatically Disqualify You

If you’ve tried to apply for a traditional credit card or an unsecured loan with no, low, or bad credit, you know that most lenders aren’t interested in working with you. However, card issuers offering secured cards do so with the intention of helping those with less-than-perfect credit.

Now, that doesn’t mean that your credit plays no role. The card issuer will most likely pull your credit report and review it during the application process. With that being said, their threshold for approval is much lower so you will most likely be approved even with bad credit.

3. You Do Not Need to Spend Money to See Improvements in Your Score

Worried that applying for and receiving a secured credit card will force you to start spending money? While you will certainly need to start making purchases, they can be small. You don’t even need to use the card very often.

The point is to have a steady stream of positive payments being reported to the credit bureaus. After a few months of responsible use, you should see improvements to your credit score.

4. You Can Learn How to Use Credit to Your Advantage

Credit is a tricky thing, particularly for people who are accustomed to paying for things with cash. The fact that there’s no physical currency being depleted – no way to watch the money disappear – can make it hard to tell when you’ve spent too much.

With a secured credit card, your low limit can help you learn and master the skills necessary to use credit effectively. When you’re able to transition to an unsecured card, you’ll be better prepared to use it responsibly.

5. You Can Transition to an Unsecured Card Eventually

With the right card issuer, you’re not stuck with a secured card forever. In fact, you might be able to transition to an unsecured credit card in less time than you might think. You just need to show the issuer that you’re responsible and able to pay your bills on time.

What to Look for in a Secured Credit Card

If you’re ready to start rebuilding your credit with a secured card, you’ll need to know what to look for in one. You’ll discover a wide range of different types and options out there, but don’t jump at the first opportunity you have. It’s important to weigh your options and select a card that offers you the most. Here are some things to look for in a secured credit card.

No Application Fee

Ideally, you’ll find a card that has no application fee. In many instances, this information can be hard to find, so make sure to read the fine print.

No or Low Annual Fee

Some card issuers charge you an annual fee to use their card, but not all do. The best scenario would be to avoid annual fees completely, but if you have no other options, make sure that the fee is affordable.

Reporting to All Three Credit Bureaus

This is a hard rule – never work with a card issuer that does not report to all three credit bureaus. Verify that they do so in writing, as well. If the issuer doesn’t report your payments, there is no point in applying for their card since it won’t help you rebuild credit.

Useful Perks and Rewards

Some credit card issuers offer perks and rewards even to consumers using a secured card. This can include things like points or miles for spending, or access to your FICO score (which isn’t included in your free annual credit reports).

Good Interest Rate

You can bet that your interest rate will be high, but that doesn’t mean you don’t have options. Shop around for the best combination of benefits and interest rates to get a secured card that will work for you without breaking the bank.

FAST FACT : According to a recent Credit Card Landscape Report by WalletHub, the average annual percentage rate (APR) for an unsecured credit card clocks in at 18.1%. 

Transition to an Unsecured Credit Card

Finally, make sure that the card issuer will allow you to transition from a secured card to an unsecured card at some point in the future. Note that the timeline for transitions can vary a lot from issuer to issuer, so be sure to consider this factor when shopping.

Additional Steps You Can Take To Rebuild

In conjunction with getting a secured credit card, there are plenty of other ways to rebuild your credit. Here are a few examples of things you can do to further accelerate the rebuilding process.

Pay Off Existing Debt

If you have low or bad credit, chances are good that you have outstanding debts with some creditors. As you may know already, there are countless ways to tackle debt. It’s up to you to organize a repayment plan and stick to it. Here are three different ways you can think about paying off debt:

  1. Start with the smallest debt to build momentum.
  2. Tackle the largest debt first.
  3. Eliminate the highest interest debt first.

By starting with the smallest debt first, you may feel a sense of momentum that pushes you to keep going. Plus, removing multiple negative items on your credit report can help boost your credit score considerably.

If you choose to tackle the largest debt first, you may feel a sense of relief once you’re able to get it out of the way.

Eliminating the highest interest debt first can save you a lot of money in interest fees. Note that even if your debts are in collections, they may still be accruing interest, as long as it is not more than is allowable under your state’s laws.

Dispute Erroneous Entries on Your Credit Report

You should get copies of your credit report from all three credit bureaus. Go over those reports carefully and identify any entries that are not yours.

You might be surprised, but it’s not uncommon for erroneous information to show up on your credit reports. This can include accounts that are not yours, incorrect amounts, paid debts still showing as active, and more. Anything inaccurate should be disputed with the credit bureau.

Avoid Applying for More Credit

While you’re in the process of rebuilding your credit, don’t apply for loans, lines of credit, or anything else (outside of secured credit cards). Remember that every application means another small hit to your credit. Be patient and wait until your score improves. You’ll find that you have access to better interest rates and lending options this way, too.


Getting a secured credit card can be a key factor in improving your financial situation. If you put some work into finding the best secured credit card for you, you will be on the way to better credit in no time.

In addition, there are plenty of other effective methods out there to help you rebuild your credit. With some time, patience, and the right secured credit card, you can reclaim your financial health.