How Long Does It Take To Build Credit With a Secured Credit Card?

Michael Collins
Apr 29, 2021

Are you struggling with a bad credit score? Are you finding it difficult to have access to loans and credit cards in order to build up your credit score? If so, building credit with a secured credit card could be a great way to start improving your credit score and reputation with the credit bureaus from the ground up. Let’s dive right into secured credit cards and how they can help you! 

Secured vs Unsecured Debt

In the world of debt, there are two main types of debt: unsecured and secured debt. The distinction is a very important one that can determine how risky your debt is to you. 

Unsecured and secured debt vary by something called “collateral.” Put simply, collateral is something of value you promise to give your lender if you fail to pay back your debt. If you end up being unable to pay back your debts, your lender is legally allowed to take whatever you put up as collateral. 

Unsecured debt is debt that does not require you to put anything up for collateral. If you get an unsecured loan, there is no down payment or collateral you need to pay in order to get the loan. If you “default” on your debt or fail to pay back an unsecured personal loan or unsecured credit card, there is nothing of value the lender is legally allowed to take. While you will get a huge knock to your credit score and may even get sued, there is no collateral that is taken. As you might be able to see, this is riskier for a lender and is less risky for you, the borrower. 

On the other hand, secured debt requires you to put something up for collateral. For example, if you get an auto loan, your lender will almost certainly require you to put the car you are buying up for collateral. If you can’t pay the loan back, the lender will take the car from you. Compared to unsecured credit card debt, secured debt is riskier for you, the borrower, and less risky for the lender. 

What is a Secured Credit Card?

While most credit cards are unsecured, secured credit cards still exist. Because secured debt is less risky for the lender, secured credit card lenders are more willing to lend to people with lower credit scores. As such, this can be a great way to build your credit history if you have a bad credit score. 

Secured credit cards work like normal credit cards, except that they require you to put down a sort of security deposit in order to use the card. If you fail to make your payments on the card, your credit card company will simply take the security deposit you put down. The deposit you make on your secured credit usually ends up being your credit limit, which is the maximum amount you can spend on the credit card on any given month.

Let’s now look at how these cards actually build a good credit score. 

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How to Build Credit With a Secured Credit Card

Your secured credit card works very similarly to a normal credit card. Each month, you spend money on your secured credit card on purchases like groceries, gas, online purchases, and just about any other purchase you can think of. However, you are not spending your money to be specific. Instead, you are borrowing from your financial institution. At the end of the month, you pay back the money you spent on the credit card back to your lender. If you fail to make this monthly payment, you will be charged an additional interest rate fee until the payment is made. 

Improving your Payment History

With most secured credit cards, every minimum payment you make (or fail to make) your lender reports to the three major credit bureaus, Experian, TransUnion, and Equifax. Over months and months of making these payments successfully, your credit history will begin to show your habit of making good payments. This in turn builds your credit score with the credit union via your “payment history.”

Your payment history makes up 35% of your FICO credit score, which makes it the single most important factor in determining your credit score. Improving your payment history is the quickest and most effective way of building your credit score. 

Each successful payment you make on your secured credit card goes under your payment history. Enough of these successful payments over time will cause your payment history to improve, which improves your overall credit score. This is the main way you build credit with a secured credit score.

However, note that failing to make a payment is the single worst thing you can do. Having one late payment hurts you more than having one successful payment, so it’s important to be on top of making your payments on-time and in-full. Having a late payment can lower your credit score up to 100 points depending on how late it is. Avoid this at all costs! 

Maintaining Your Credit Utilization Ratio

Similarly, maintaining your “credit utilization” is another way to grow credit with a secured credit card. Your available credit utilization is the percent of your credit limit that you use every month. Similar to your payment history, this makes up 30% of your total credit score, which makes it another extremely important part of your overall credit score. 

Here’s an easy example to illustrate credit utilization: if your credit limit is $500 and you spend $400 of it, your credit utilization ratio is 80%. If you can keep your credit utilization ratio to 30% or less of your credit limit, your credit score will increase. While this may be difficult, keeping it below 10% will increase your credit score even more. 

One common way of improving your credit utilization is by increasing your credit limit. Back to the earlier example, if you raise your credit limit from $500 up to $1,000 but still only spend $400, your credit utilization goes from 80% to 40%. As you can see, you can improve your credit utilization without needing to change your spending at all. 

However, increasing your credit limit with a secured credit card most likely means you will have to pay a larger security deposit. While this may be difficult in your current financial situation, the benefits of doing so can really help to increase your credit score. 

How Much Will a Secured Credit Card Raise My Credit Score?

Unfortunately, there is no easy way to get a gigantic boost to your credit score very quickly. Using a secured credit score will not increase your credit score by 200 points. However, this is not to say that successfully paying back your secured credit card over the course of many months or even years will not greatly increase your credit score. Especially if you have a bad credit score, using this card can really help to raise your score. 

Unfortunately, there is no definitive answer to how much using a secured credit card will improve your credit score. Your credit score is very complex and there are so many different factors that make your credit score different from anyone else’s. Using a secured credit card will affect your credit score differently than someone else’s due to your current credit score, your credit history, and many other factors.

However, one thing can be sure: with all else equal, if you successfully pay off your secured credit card without missing a payment for many months, your credit score will increase. While there are no guarantees, if you start with a bad credit score and pay your secured credit card for a year or more, you may begin to qualify for better forms of debt like unsecured credit cards. 

How Fast Can I Build Credit With a Secured Credit Card?

If you’re wondering, “how long does it take to build credit with a secured credit card,” remember that you really can't boost your credit score 100 points overnight. If you could, everyone would have a perfect credit score! In the case of your credit, slow and steady wins the race. Credit building is a long and oftentimes difficult process that takes a long time to do, but the rewards of doing so can make a huge impact on your financial health and wellbeing. 

While there is no specific answer to how fast you can build your credit score up with a secured credit card, you should generally begin to see results over the course of some months. After two, three, or even four months of making payments you may see little to no change to your score. In general, after 6-12 months of making payments, you should start to see some sizable improvements to your credit score. 

Pros and Cons of Secured Credit Cards

You now know all about secured credit cards, but should you actually become a cardholder? Take a look at some of these pros and cons of secured credit cards to know if one is right for you. 

Pros

  • Can get one with a bad credit score: The main purpose and main differentiator of these secured credit cards is that you can be approved for one with a bad credit report. Building credit is often a Catch-22; you need access to loans and credit cards to build your credit history but you can’t get most of them with a bad credit score. Unsecured credit cards are one of the best ways to avoid this and build your credit history if you have a bad score. 
  • Stepping stone for better credit and loans: If you have a poor credit score, some of the debt you have access to is low-quality and expensive, like payday loans. By building your credit with a secured credit card account, you can graduate out of these sub-par loans and cards. Secured credit cards act as a stepping stone where you can eventually get better loans and better credit cards that are better for your financial health.

Cons

  • Some don't build your score: Despite one of the main purposes of secured credit cards being to help people build credit, not all secured credit cards build your credit score. Lenders are required to report your payments to the credit bureaus and some might not report a single payment to the credit bureaus, even if you make years worth of payments! To avoid this, make sure your lender reports your payments before you get a secured credit card. If they don’t, avoid working with this card issuer. 
  • High fees and interest: Like other forms of debt accessible to people with low credit scores, secured credit cards can be expensive due to the high fees and interest associated with them. Compared to normal credit cards, secured credit cards will have higher APRs and will often try to pin more annoying fees on you. Overall, these cards will be more expensive than your typical credit card. 
  • Lower credit limits: One main drawback of secured credit cards is that their credit limits tend to be lower than typical cards. As we mentioned before, your credit limit with a secured card depends on your initial secured deposit that you make your lender. While typical cards might have initial credit limits near $1,000 or more, it can be very difficult to cough up $1,000 for a secured deposit, especially if you are tight on cash to begin with. As such, your credit limit with one of these cards will only go so far as the amount you can deposit. 

Final Thoughts…

If you have a bad credit score, a secured credit builder card is one of the best ways to both get the cash you need and to build your credit history at the same time. While there are some drawbacks to secured credit cards, like their expensive APRs and other fees, they are one of the best options for you if you are looking to build your credit score up from the ground. 

Alternative to Secured Credit Cards: Possible Finance

Here at Possible Finance, we offer small loans of up to $500 that we like to call credit-builder loans. We created these loans so borrowers can avoid the harms of payday loan lenders and can have access to necessary funding while also building their credit score at the same time. 

Payday loans and secured credit cards can be difficult to pay back and may not even build your credit history. If you are struggling to make one of the four payments towards your loan, you can extend your payment right within our app up to 29 days later, for no penalty. Further, we report every payment you make to the credit bureaus which builds your credit score up over time. It’s a win-win!

Think you may want an installment loan with Possible? Check out our website or download our app today!

Michael Collins

Michael has a passion for writing and has since brought that passion to Possible. He enjoys reading everything there is to know about film, sports, and finance. His studies in college allow him to be on the forefront of business knowledge so he can better inform his readers.

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