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How to Build or Restore Credit With Secured Financial Tools

These days, having good credit isn’t optional. A low credit score is not just an inconvenience – it can actually prevent you from getting ahead in life. A few reasons your credit may be checked for include:

  • Obtaining a Loan
  • Employment
  • Renting an Apartment
  • Obtaining Utilities
  • Obtaining Cell Phone Service

So, what do you do if you currently don’t have good credit?

Maybe you are just starting out in life and you don’t have any credit history. Everyone has to start somewhere. Or perhaps your credit score has been damaged from late payments, divorce, legal judgments, errors on your financial reports, or something else.

A low credit score isn’t something you have to be stuck with forever. There is a powerful tool you can use either to grow or repair your credit score: a secured credit card.

What is a Secured Credit Card?

Secured credit cards are essentially the same as unsecured credit cards, but they differ in one important way.

Unsecured credit cards are not backed by collateral. If approved for an unsecured card, you are given a line of credit that you can use to make purchases. Secured credit cards, however, are backed by a deposit you make in a savings account with your credit union. The maximum amount of credit you have on the card is determined by the amount of your deposit.

For example, if you want a secured credit card with a $500 credit limit, you will be required to deposit at least $500. The lender holds the deposit for as long as you keep and use the secured credit card. Some lenders may require you to deposit more than the amount of your credit limit.

Secured credit cards work the same way as unsecured credit cards. You can use them to make purchases, and you will receive a monthly statement for the balance due each month.

How Can I Use a Secured Credit Card to Build My Credit?

Secured credit cards are ideal tools for building credit because the payments you make on your account each month are reported to TransUnion; the credit bureau that Best Reward uses for all of its members’ lending purposes.

It’s important to point out that using a secured credit card to improve your credit score depends on you making your payments on time each month. Late payments will harm your credit score.

You are legally entitled to obtain one free credit report from each of the three credit reporting bureaus annually. And, in response to the COVID-19 pandemic and its potential impacts on one’s financial health, these reporting agencies are allowing you to check your credit for free weekly until April 20, 2022. You can use these reports to check how on-time payments are helping to build your credit. Visit to request your report from each of the three credit reporting agencies: TransUnion, Equifax, Experian.

What Can I Purchase with a Secured Credit Card?

There are no restrictions on what you can purchase with a secured credit card. Like unsecured cards, they can be used for anything as long as you don’t exceed your credit limit. If the deposit you make with your lender isn’t very high, a secured card is best suited for small purchases. A few things you can use a secured card for include:

  • Dining Out
  • Groceries
  • Gasoline
  • Movie, Concert, and Event Tickets
  • Airline Tickets
  • Hotel Rooms
  • Car Rentals

One of the best tips for saving on a tight budget when using a secured credit card is to use it only for things you know you have to buy anyway. Many people are tempted to buy things they want instead of need when they have a credit card. If you don’t stick to a budget, you could spend more than you realize and struggle to make the payments – and this could negatively affect your credit score.

Why Not Use a Prepaid Card Instead?

You’ve probably seen them for sale in stores when shopping – prepaid Visa and Mastercards. Why not buy and use one of these cards instead of putting up a deposit for a secured credit card?

Prepaid cards are not good for building credit because they don’t require an account with a lender where you have to make monthly payments. The information from your financial transactions with these cards is not reported to the credit bureaus.

How Long Will I Use a Secured Credit Card, and What About My Deposit?

Most people use secured credit cards temporarily to help them build their credit. After some time of making timely payments on your account, your lender may convert your card into an unsecured card. If your credit score has increased, you may also be able to qualify for additional loans.

The deposit you make with a lender is held as collateral for as long as you keep your account open. When you decide to close your account or if your account is converted to an unsecured credit card, your deposit will be refunded in full.

Building Your Credit the Smart Way

A secured credit card is a powerful tool you can use to build your credit. But there are other financial tools you can use too, like a secured loan. Using multiple strategies at once is a great way to build your credit quickly so you can enjoy the perks that come with having a strong score.

Learn more about strategies for how to build credit using secured financial tools by clicking below.

Quick Guide to Building Your Credit   Apply Now