How does a Secured Credit Card help Build Credit?
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How does a Secured Credit Card help Build Credit?

Moumita Basu

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If you are new to the credit market and want to build a good credit history, secured credit is the best solution. With a secured credit card, you deposit money into your account with the credit card company in order to open an account. The credit line you are granted is equal to the deposit you make, or the amount you use to "secure" the account. For example, you can obtain a card with a $200 line of credit by making a $200 deposit.

How much will a secured credit card raise your score? While we can’t say for sure how much your credit score might improve, we can tell you that using a secured card can boost your credit score relatively quickly in approx six months. Especially you should focus on these five factors to make up your credit score:

  • Payment history
  • Credit utilization
  • Length of credit history
  • Credit mix
  • New credit

If you want to start building credit with a secured card, make on-time payments every month. Maintain a good credit utilization ratio by keeping your debts low and paying off your balances. Avoid unnecessary hard credit inquiries that can lower your credit score. You'll be able to create the credit mix that could one day help you achieve a perfect credit score. When your credit improves, your credit history lengthens, and you become eligible for extra credit lines.

How does Secured Credit Cards Work?

If you are wondering how does a secured card work, here is a simple explanation for you:

  • A security deposit is necessary for all secured credit cards. It is not a secured card by definition if you are not required to give the issuer this collateral. The deposit may occasionally be kept in an interest-bearing account linked to the secured credit card. However, some secured credit cards like Azpire do not receive any interest at all.
  • If authorized, the amount you'll have to deposit some amount depending on the card issuer. For instance, most secured credit cards demand a minimum deposit of $200. A $200 credit line is guaranteed by that $200 deposit. Your credit limit will often be the same as the amount you deposit with most issuers.
  • Don't worry if you don't have that much cash in hand; some issuers allow you to pay your deposit in installments rather than all at once.
  • If you've handled your account effectively, your card issuer might increase the credit limit on your secured card without requiring another cash deposit. This includes maintaining your card balances below the credit limit and paying your bills on time.

How Can I get a Secured Credit Card?

The process to get a secured credit card is the same as other credit cards. But some key features to know about secured credit cards are:

  • With a secured credit card, the cash deposit you make determines your credit limit or the maximum amount you are permitted to charge
  • The deposit provided to start the secured credit card account serves as collateral, so once it has been paid, it remains in reserve and is not available to the borrower
  • In most cases, secured card issuers will only utilize it if you miss a predetermined number of payments or default. If you cancel the card and your balance is paid in full, you get your deposit returned. Alternately, some issuers of secured credit cards will periodically check a borrower's payment history and, if they consistently make payments, convert their secured card into a standard credit card. In this case, you will also get your deposit refunded

Some issuers make it hard to get a secured credit card by putting minimum deposits, annual interest rates, etc. With Zolve builder card, you will not have to face this trouble. You can get the card by following these simple steps:

  • Simply visit www.zolve.com.
  • Register for a Zolve Account
  • Upload necessary documents and you're set. It’s that easy and takes less than 5 minutes!

So, now if you want to look for secured cards that suit your needs, be sure to carefully review the terms and conditions of each card so you are aware of APRs, fees, minimum and maximum deposits, steps to returning your deposit, and lastly check whether the issuer submits a report to the three main credit bureaus. Some credit cards like Zolve Azpire charge no fee and zero annual interest rates, it would be a wiser option to consider free secured credit cards for building your credit.

Frequently Asked Questions (FAQs)

What are the two causes for opening a secured credit card?

The top two reasons to use a secured credit card are:

  • High Approval Rate: Regardless of your bad credit or no credit history, you can still be approved for a secured credit card
  • Low Costs: Because secured cards need a refundable security deposit, they often have relatively low yearly fees. Some secured credit cards like Azpire apply no annual fee

Do I have to make monthly payments on a secured credit card?

Yes, you should. Using a secured credit card is meant to show your responsibility while making purchases and your ability to timely settle your bill. Make a few purchases each month and make sure to pay your bills on time and in full to achieve this.

How do secured credit card payments work?

Secured cards operate the same as unsecured after the first deposit is paid. You can pay online as well as anywhere else that accepts credit cards. You pay the charges on your bill when it arrives each month. Remember you can’t use your deposit for purchases.

How does a US bank secured credit card work?

US bank secured credit card work as other secured cards. It keeps track of your usage and frequently updates the three main credit bureaus on the status of your card. So, spend just up to your credit limit, and always pay your bills on time. Your credit will gradually be built as a result, and you might eventually be automatically upgraded to the U.S. Bank Cash+ Visa Signature Card. Your security deposit will be refunded once you graduate.

Do secured cards work?

Yes. Secured credit cards can help you establish credit if you maintain good account status by paying the balance in full each month. This is because all major secured cards like Visa, Azpire, etc send monthly reports to 1-3 major credit bureaus.