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What is a secured credit card and will it help my credit?

Dear Experian,

I don’t have enough credit history to generate a score, so I got a secured card with a $500 limit.  I have been making small charges, less than $70, and paying them off in a couple of days.  I’ve been told it would be better to keep a small balance of about $10 or so on the card.  Is this true?  The goal is to build my credit score as high and as fast as possible.

– JTD

Dear JTD,

You’re on the right track. Secured credit cards are a great tool for those who wish to begin building a strong credit history, provided the lender is one who reports their secured credit cards to the credit reporting companies.

How a secured card works

With a secured card, you deposit a certain amount of money into a savings account, and in return you receive a credit card with a credit limit that is a percentage of the deposited amount.

How a secured card helps your credit

By using the account a little each month to make small purchases and then paying off the balance in full, you are demonstrating how well you can manage credit and it will help build good credit scores.

Why you don’t need to keep a balance

As long as you are continuing to use the card frequently, it is not necessary to a carry a balance over from one billing cycle to the next. Paying off the balance right away not only ensures that you won’t get stuck paying interest fees, it also keeps your utilization rate low.

Your utilization rate, or balance-to-limit ratio, is the second most important factor in credit scores. By making all your payments on time and keeping your balances low, you are working towards building a positive credit history. With time, the lender may be willing to convert your secured account to a regular unsecured credit card account.

Thanks for asking.
The “Ask Experian” team

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