Everything you need to know about getting a secured credit card (2024)

FAQs

What is 30% of the $200 credit limit? ›

The rule of thumb is to keep your credit utilization under 30%. That means if you have a $200 limit, you should aim to keep your total balance below $60.

You deposit a certain amount with the credit card company, known as a security deposit, and that money is returned to you when you close your credit card account or switch to a non-secured card and your balance has been paid. Most secured credit cards require a deposit of at least $200 to $500 from your bank account.

It can take up to six months for people with no credit histories to establish their credit scores. If you have poor credit, you may notice a change in your credit score after using a secured credit card for a month or two. Make your payments on time and keep your outstanding balances low to improve your credit score.

But secured credit card issuers generally want to see that a borrower has income. Aside from the deposit, a secured card isn't treated much differently (legally speaking) than a standard credit card.

Credit card issuers generally require that you share your Social Security number (SSN) as a way to verify your identity. If you don't have an SSN, some issuers still make it possible to open a credit card. You still need to meet minimum card application requirements, even with alternative identification.

The Consumer Financial Protection Bureau recommends keeping your credit utilization under 30%. For instance, if you have a $1,000 credit limit, aim to keep your credit below $300.

This means you should take care not to spend more than 30% of your available credit at any given time. For instance, let's say you had a $5,000 monthly credit limit on your credit card. According to the 30% rule, you'd want to be sure you didn't spend more than $1,500 per month, or 30%.

If you're just starting out, a good credit limit for your first card might be around $1,000. If you have built up a solid credit history, a steady income and a good credit score, your credit limit may increase to $5,000 or $10,000 or more — plenty of credit to ensure you can purchase big ticket items.

While having multiple secured credit cards can provide benefits, opening too many at once may be counterproductive. It's essential to manage the accounts effectively and avoid overextending your credit. Two secured credit cards are often sufficient for most individuals to build credit effectively.

Advantages of a Secured Credit Card

They are a back up when you don't have cash for a purchase. They can help you create or improve your credit history. You can use them to make payments almost everywhere. You receive monthly billing statements detailing what you bought and how much you owe.

Can you rent a car with a secured credit card? ›

Secured Credit Cards Can Help Build Your Credit

While secured credit cards require you to provide a security deposit that usually establishes your spending limit, they can be used to cover many of the same transactions as unsecured credit cards, including renting a car.

There isn't an exact number for how much a secured credit card may raise your credit score. The improvement of your score depends on how you use your card, how long you use it and the starting point of your credit. Being approved for a secured credit card won't improve your score automatically.

The truth is that secured credit cards are a great way to help consumers build credit, and as long as your account is in good standing, you'll get your secured credit card security deposit back when you've closed the secured credit card or upgraded to one of your issuer's unsecured credit cards.

If you have no credit history, a secured credit card can be a first step to begin building one. If you have a low credit score that makes it difficult to qualify for an unsecured credit card or other loan, a secured credit card can help you rebuild your credit.

With a secured credit card, the money you put down is a security deposit, which the card company holds in case you don't pay your bill. The money is not used to pay for purchases. If you provide a $200 deposit and then use the card to buy something for $50, you'll have to pay $50 when your bill comes.

The point of a secured card is to build your credit, and a key element of your credit scores is credit utilization, the percentage of your available credit that you're using. Credit scoring models tend to penalize utilization over 30%, so if your credit limit is $200, you won't want your balance to exceed $60.

While secured credit cards are usually easier to qualify for than unsecured credit cards are, card issuers might turn down applicants who don't meet certain requirements. Take a look at why you might be denied a secured credit card, and learn how you might be able to improve your credit scores before reapplying.