How these cardholders used secured credit cards to rebuild their credit

This page was originally published in early 2022 and still contains relevant interview quotes from that time. The rest of the article has since been updated.

Key takeaways

• Secured credit cards are popular credit building tools, but not everyone opens them for the same reasons or uses them in exactly the same way.
• The cardholders and experts featured in this article talk about their credit building journeys using secured cards.
• By getting secured credit cards, they learned how to start building healthy credit habits and how to improve their credit scores even with low credit limits.

If you have bad credit, a limited credit history or a recent negative mark on your credit report, you might have trouble getting approved for many of today’s top credit cards. But there is another way for you to prove that you can handle credit responsibly — a secured credit card.

Unlike typical credit cards — which tend to be unsecured — secured credit cards give you access to a small line of credit in exchange for a security deposit (usually the same amount as your credit limit). Since you’re securing the line of credit with your own money, lenders are often comfortable issuing secured cards to people who have little to no credit or who are recovering from financial setbacks like bankruptcy.

We spoke to several cardholders who discovered just how big a difference a secured card with a small credit limit can make. Some were originally interviewed in 2022 and others just this year, but the advice still holds true regardless.

Here’s what they learned as they used secured cards to build their credit history and improve their credit score — and what you can do if you’re ready to do the same:

How to use a secured credit card

Before we jump into how exactly secured credit cards can be a useful tool when working to rebuild credit, let’s understand how to use a secured credit card. You can start with the following steps:

1. Choose the right card. A secured credit card isn’t designed to be used for all everyday expenses, so the features to consider when choosing a secured card will differ from those relevant to choosing a standard unsecured rewards credit card. Ideally, you are going to want to find a secured credit card that does the following: reports your account activity to the credit bureaus, asks for an affordable security deposit, offers a path to upgrade and doesn’t have outrageous fees.
2. Pay the security deposit. After you apply for a secured credit card and get approved, make sure to provide the security deposit. You are typically not authorized to use the credit card until you pay the deposit within a certain time frame, although some cards might charge your deposit with your first credit card statement instead.
3. Use the card. Once you pay your security deposit, you can start using your secured credit card, but use it wisely. Avoid maxing out your credit card and keep your balance low to maintain a good credit utilization ratio.
4. Pay your balance on time and in full. The point of a secured credit card is to build strong credit, so the best way to go about this is by practicing solid habits. You can start by always paying your balance on time. If possible, pay in full every month.
5. Graduate to an unsecured credit card. Although this varies by issuer, some secured credit cards automatically graduate to traditional unsecured credit cards after you establish a history of on-time monthly payment.

Advice from cardholders on using secured cards wisely

We’ve compiled helpful advice from our interviewees to bring readers these tips on using secured credit cards to build credit:

A secured card is an opportunity to show responsible credit habits

Jessica Clark, who runs the cooking blog Gluten Free Supper, and her husband used a secured credit card to build credit and dig themselves out of a bad credit hole. “My husband and I had to file Chapter 7 bankruptcy about seven years ago,” Clark said. “We really wanted to purchase a home, but knew that would be next to impossible with having just filed bankruptcy and having bad credit.”

“I applied for a secured credit card and added my husband as an authorized user,” Clark said. “We used our cards regularly, making sure to keep our usage under 30 percent.” This strategy helped them earn the financial freedom to escape a rental market that required them to move nearly every year.

While Clark was working to improve her bad credit, Sam McRae, an injury attorney in Georgia, was in the position of not having any credit history at all. “I was taught to pay everything with cash by really frugal parents,” McRae explained. His cash-only spending had left him with no visible credit file. “After law school, I realized that I didn’t have enough credit to get a loan or a credit card.”

He, too, turned to a secured credit card. Both Clark and McRae were able to use secured credit cards to prove they could use credit responsibly — and both were able to quickly build their credit scores as a result.

Once lenders are able to see that you can handle a secured credit card without overspending or missing payments, they will be more likely to increase your credit line, refund your security deposit or give you the opportunity to apply for an unsecured credit card.

Bankrate editor Liza Carrasquillo took this approach as a recent college graduate: “I applied for the Discover it® Secured Credit Card and put down a $400 deposit, then began my credit-building journey by setting up autopay only using it to pay for gas,” she says. “Eventually, they graduated me to an unsecured version and refunded my money after raising my credit limit. I got my credit score above 700 using only that card and paying it off on time each month — not bad considering I hadn’t put any other effort into bettering my credit”

I got my credit score above 700 using only [a secured card] and paying it off on time each month — not bad considering I hadn’t put any other effort into bettering my credit.

— Liza Carrasquillo Editor, Bankrate

This almost perfectly lines up with Bankrate writer Seychelle Thomas’ experience as a bank branch manager. “When I worked as a branch manager for PNC Bank, one of the most common ways I suggested for people build credit was to get a secured credit card,” she says. “One client was working full-time and earning good money but didn’t have the credit he needed to buy a new car. I suggested getting a secured card, which he used just to cover a small monthly bill. After just six months of on-time payments, he was able to upgrade to an unsecured credit card with a $2,000 limit and get his security deposit back.”

Even a small security deposit can make a big difference

When deciding whether to apply for a secured or unsecured credit card, the deposit requirement and maximum deposit are worth a close look. When you open a secured credit card account, lenders require you to put down a security deposit, which helps protect the lender if you aren’t able to pay your credit card balance.

On one hand, a low security deposit is obviously appealing since it means you’re tying up less money as you build credit. On the other hand, most secured cards match your credit limit to your security deposit, so if you put down a large deposit, it will be easier to keep your credit utilization in check.

Brian T. Edmondson, founder of Bankruptcy Recovery Foundation, started to rebuild his credit after bankruptcy with a $200 security deposit on a card. But some secured cards allow you to put down even less collateral. For example, the Capital One Platinum Secured Credit Card allows you to start with a deposit as low as $49 if you qualify.

In some cases, you won’t even need to come up with the money in advance. “The secured cards that I used did not require a security deposit upfront,” Clark explained. Instead, the first statement for each card would include a fee in the amount of the security deposit. “I didn’t need to come up with the money until about a month later when the payment was due. It was doable because it was only $200.”

If you’re looking for a higher limit, some secured cards give you the opportunity to put down a larger deposit in exchange for a larger credit line. The Discover it® Secured Credit Card allows cardholders to make a security deposit between $200 and $2,500, with a credit limit to match.

Be consistent with small charges and full payments

A secured credit card gives you a chance to both practice and prove responsible credit habits. The key to building credit with a secured credit card is to use a small percentage of your credit line each month and then pay it off when your statement arrives. This demonstrates to your card issuer, and in turn the credit bureaus that you can responsibly manage credit. As your history of moderate credit utilization and consistent payments grows, so will your credit score.

The general advice from experts is to keep your credit utilization, or the amount of your available credit that you use, under 30 percent. So if you have a secured credit card with a $200 limit, that’s going to mean less than $60 in charges each month. “I initially used my secured card to make small purchases here and there,” Edmondson explained. “Such as paying for a few fast food meals a month or buying a small amount of items at the convenience store.”

Bankrate editor Madison Hoehn took the same approach. “I applied for the Capital One Platinum Secured Credit Card in early 2023 as a credit card newbie hoping to build on my non-existent credit history,” she says. “I set up autopay to consistently pay off a $30 monthly subscription, and my credit score has gone up over 50 points since.”

While that may not seem like much, the goal while building credit with a secured card is not to manage your everyday expenses with credit — the majority of your spending will likely still be covered by cash or debit cards.

The goal is to demonstrate responsible credit use to increase your credit opportunities in the future. In fact, it took only a month for McRae’s secured card to become part of his credit history. “After the secured card was reported on my credit report, I was able to apply and be accepted for an unsecured card,” McRae said.

I set up autopay [on my secured card] to consistently pay off a $30 monthly subscription, and my credit score has gone up over 50 points since.

— Madison Hoehn Editor, Bankrate

Understand and keep an eye on your credit score

If you’re hoping to use a secured credit card to improve your credit score, it’s important to know how your credit score is calculated. Your FICO credit score, for example, is calculated on the following five components:

1. Payment history (35 percent)
2. Amounts owed (30 percent)
3. Length of credit history (15 percent)
4. Credit mix (10 percent)
5. New credit inquiries (10 percent)

Similar factors are also considered for your VantageScore, although they are weighted differently. But don’t worry, you don’t need to be too concerned with the different credit scoring models because the basic principles of building credit are the same: Make small charges on your secured credit card every month and then pay them off on time and in full.

Most banks and credit card issuers offer tools to help you track your credit score, and many of those tools are free. The best tools for credit monitoring provide insights into recent credit score changes, as well as offering tips to help you continue improving your credit.

Use these credit trackers to keep an eye on your credit score and ensure it’s going in the right direction. “I got to see my score slightly rising as I used and paid off the secured card each month,” Clark said.

You won’t be stuck with a secured card forever

If you’re anxious about the costs associated with a secured credit card — or if you’re concerned that people might judge you for carrying a secured card — don’t worry. Secured cards look exactly like every other credit card, and most secured card issuers regularly review your account to determine whether you’re eligible for a security deposit refund.

“If you use a secured credit card to rebuild your credit, at some point you will get your initial security deposit returned back to you,” Edmondson explained. “I just received my initial deposit back from Capital One for one of my secured cards.”

That typically happens once you’ve proven to your credit card issuer that you’re responsible enough for an unsecured card. At that point, you’ll be ready to move on to the next step in your credit journey, whether that’s with the same issuer or a new one.

McRae continues to use his secured credit card for small purchases — even after building his credit score and moving on to better credit cards. “I still use my secured card to auto-draft my Netflix account and pay it off at the end of the month,” McRae said. “I keep the secured card because it’s my oldest credit card, and the payment history is perfect.”

The bottom line

If you’re struggling to get approved for a traditional credit card, a secured card could be the answer. There are many reasons people turn to secured credit cards. Some are new to credit, while others are rebuilding after a financial setback. The basic formula for building credit, however, is the same for everyone: prove responsible use by borrowing against your line of credit and paying it off in full.

“Don’t be afraid of credit cards,” McRae said. “If used correctly, they can be a great tool to build your credit score.”