How to Boost Your Credit Score with a Secured Credit Card
Are you looking to build credit history for the first time or improve your existing credit history damaged by past financial woes? Even though it’s not a one size fit all strategy, you may want to get a secured card. Basically, if your lack of credit or poor credit is working against you, then you will want to read on to learn how to boost your credit score with a secured credit card. A secured credit card differs from an unsecured (regular) credit card in that secured cards require a security deposit by the cardholder - say $250. The card is issued with a credit limit equal to the amount you deposited, which would be $250. Your initial deposit functions as cash collateral against you defaulting on your payments. The secured card is like a debit card, that works and gives the benefits of a credit card.
Based on my general experience, a secured credit card is a great tool to build or rebuild your credit history, but how things progress after getting a secured credit card will depend heavily on each person. A person with no credit history [no negative information, just lack of positive information], can see their credit score increase in as little as six months. And a person with poor credit history, can see their credit score increase significantly in about one year - but may also require paying down debts.
Guidelines to boost your credit score with a secured card:
- While past credit history will play a major role, it still requires responsible regular use and diligence to boost your credit score, and earn good credit standing. You will need to use your secured card to build a credit history, so use your card to make small purchases like grocery or gas, and steer clear of purchases you cannot afford.
- Being credit-worthy means making at least the monthly minimum payment - which may be a greater of 3% or $25. Better yet, pay the full outstanding balance every month. No matter which option you choose always make payments on time and never miss a payment.
- Another factor that will play a role is the “credit utilization ratio.” What this pretty much means is how much of the available credit you are using. Ideally to maximize and boost your credit score, you will want to maintain a 30% or less ratio.
How to select a secured credit card
Not all secured cards are created equal. The one you choose should have no application fee and very low or no annual fees. Don’t make the mistake of assuming that every trade line is reported to all three bureaus - so ensure the issuer reports to all three credit bureaus. Capital One or my bank Bethpage Federal Credit Union offer secured cards with flexibility and convenience to suit your needs and lifestyle.
A secured credit card can be a very powerful tool to prove yourself and help boost your credit score. However, do keep in my mind that secured cards like regular credit cards, come with fees of all kinds.
Disclosure: This article is not intended to give any tax, investment or financial advice of any kind. Everyone’s situation is unique, therefore seek professional advice from your CPA, financial adviser and or lawyer.