Good news! You just got a secured credit card and are on the way to building your credit history. A secured card can help you get other types of credit and is a great stepping stone to new financial opportunities.
Secured cards work just like normal credit cards, but typically require you pay a security deposit—often equal to your credit limit—before getting your card. Because the deposit helps the lender feel more comfortable taking on a riskier borrower, secured cards are great tools for people looking to jump-start or build their credit.
To activate this credit-building potential, it's important to know how to use your card to grow your score. If you haven't done so already, contact your new card issuer to arrange your deposit and activate your card.
Once you have your card, follow these five tips to make sure you get the credit you deserve with your new secured card:
1. Only use your card for essential monthly purchases.
You just got a new credit card and may be tempted to go out and spend, or perhaps splurge on something special for yourself—but using it to make purchases you can't afford could plunge you into debt. Instead, use your new secured card for essential purchases that you'd otherwise make each month. This will help keep you from racking up debt, and will help you maintain a positive payment history—which is crucial if you want your new card to help build your credit.
Remember, other lenders are going to look at your history with this card to see whether you used it responsibly. By only using your secured card for essential spending, and paying off your balance each month, you will show lenders that (at least with this card) you can responsibly pay your bills each month.
2. Make sure to pay your bill on time each month.
The most important aspect of your credit scores is your payment history. Paying your credit card bill on time each month will help you establish positive payment history and should help your credit scores increase over time.
While paying the monthly minimum will satisfy the card issuer, having a high balance will affect your credit utilization ratio, which can have a negative impact on your credit scores. Your utilization rate is essentially how much of your total credit card limits you're using, expressed as a percentage. Experts recommend you keep your utilization ratio under 30%—under 10% is ideal.
If you're worried about paying your bill on time, consider signing up for autopay. Autopay works by automatically withdrawing funds from your bank account when it comes time to pay your credit card bill. Most card issuers make it easy to sign up, and it is a great way to make sure you don't hurt your credit score by missing a payment.
3. Check your credit reports and scores to make sure your account information is being reported.
Your secured card can only help your credit scores if your account information is being reported to one or all of the three major credit bureaus (Experian, TransUnion and Equifax). Most major card issuers report your account information—including payment history, credit limit and balance—to one or more of the credit bureaus, and that information is then used to calculate your credit score. If your card issuer doesn't do this, you might consider moving to one that does.
To see whether your account information is being recorded in your credit file, wait until you've had your secured card for a few months and then check to see if a record of your account and payments is being recorded in your credit report. You can also contact your card issuer directly and ask them which, if any, of the three major credit bureaus they report to.
Getting a free copy of your reports and scores can help you verify that your information is being recorded and make sure that you are getting credit for your account. Checking your own credit does not impact your scores, so feel free to do it as often as you like. You can get a free copy of your credit reports and scores through Experian, and learn more about how to understand your reports here.
4. Check for any other benefits associated with your card.
While secured cards don't typically come with sign-up bonuses (you may be eligible for one of those cards soon!), they still may have perks that you can benefit from. If your card is backed by a major issuer, look for benefits such as rental car insurance and fraud protection. You can find more information about what you are eligible for in your cardholder agreement.
There are also a few select cards—such as the Discover it® Secured card—that offer spending rewards like cash back. You can learn more about the Discover it® Secured card and other secured cards in Experian's credit card marketplace.
5. Find out whether you can convert to an unsecured card.
After having your secured card for some time, you might want to upgrade to an unsecured card—or one that doesn't require a security deposit. Many unsecured cards come with valuable rewards or spending benefits and may also come with higher credit limits.
Some card issuers will convert secured cards into unsecured cards after a period of time and return your original security deposit. With the Discover it® Secured card, your account is automatically reviewed every eight months to determine whether it can be converted to an unsecured card. Check with your card issuer to see if you have the option to convert or upgrade your secured card.
If you've had your secured card for some time and are interested in applying for another card, you can use Experian's CreditMatch tool to get paired with cards that are right for you based on your FICO® Score☉ .