How to Increase Your Credit Score With a Secured Credit Card

A good credit history means good rates on loans and other credit facilities. Once damaged, rebuilding your credit can be difficult. However, you can get started by using a secured credit card which is easier to acquire than most other lines of credit. In this article, we will see how to increase your credit score with a secured credit card.

Difference Between Secured and Unsecured Credit Card

Unsecured credit cards are the common type and only require a review of your credit history for approval. When your credit history is not favorable, your lender can issue you a secured credit card.

Unlike the first, instead of referring to your financial history, secure credit cards require you to post a guarantee. The amount of your security deposit determines your credit limit. And if you default, the issuer uses your deposit to get their money back.

How to Increase Your Score Using a Secured Credit Card

Building your credit score is all about using your available credit wisely. Here’s how:

1) Only use what you can afford monthly

A secured credit card allows you to show lenders that you can be financially responsible. The easiest way is to make small purchases and pay your bills in full at the end of each month. By doing so, your payment history, which represents 35% of your FICO scoreis improving.

Also, whenever possible, pay more than the required minimum to ensure your balance stays low. The reason is that in addition to showing that you can manage your finances properly, your credit utilization ratio (CUR) will decrease.

30% of your credit score is derived from this ratio, which is calculated as your debt divided by your credit limit.

Plus, by being punctual with your payments and paying the minimum, you avoid paying high interest on your credit purchases.

2) Make several payments per month

Your lenders continually send your financial reports periodically to the three credit bureaus; TransUnion, Equifax and Experian.

However, financial institutions and lenders are not required to inform you when sending your report. So you could make payments at the end of the month while they submit reports in the middle of the month. As such, your credit repayment file can be negatively impacted.

Keep this effect to a minimum by making several payments during the month. This will ensure that your balance is strategically low. For the same reason, after major purchases, be sure to send money to your credit account.

3) Opt for a secure credit card with low interest rates

Building credit starts with striving to pay back what you owe. This can be hindered by getting a card with high interest rates. Make it easier to meet your card obligations by shopping for a low-interest card.

Typically, credit unions offer better deals on cards than banks. Also opt for cards with something more to offer. Besides the basic features, ask for cards with great features like cash rewards and limits bigger than your security deposit.

4) Choose the right card

None of the above will work if your card issuer does not report card activity to the credit bureaus. What you need to understand is that unlike other savings accounts or debit accounts, not all secured credit card issuers submit reports. So, before applying for a card, make sure that your account usage will be reported.

The bottom line

Secured credit cards can give you another chance to boost your credit. But just like other cards, they are subject to abuse. The trick is to look for the best deals and use the card diligently: Do not max the card, carry a balance, or get more cards than you can handle.