Building good credit with secured credit cards

Learn how to build good credit with secured credit cards. Find out why obtaining secured credit card is a fundamental step to get good credit rating for people with poor or no credit history.

What is a secured credit card?

A secured credit card is where you pay a bank an amount of money, say $1000 and receive a credit card with a $1000 limit on it.  You use the credit card in precisely the same way as traditional credit card and make ordered monthly payments to pay off any money that you spend using the card.

The credit card is secured against the money you have in the bank so there is no risk for the lender because they basically take this balance if you don’t pay the balance on your credit card.  Most banks will even give you interest on the initial payment you make to secure the credit card.

How this helps to build credit?

This is a very good way for people with bad credit to establish their good credit.  Firstly there is no risk for the bank so there should be no problem in them offering you a secured credit card.

Secondly if you are making frequent and consistent repayments on your card then you are building a solid credit history on you credit report that shows you consistently pay off your debts.

What are the risks?

You must repay your monthly amounts without fail or you’ll just be damaging your credit more.  Also make sure you don’t go over your limit on your card.  This can be simple to do because secured credit cards do not allow large credit limits.

Secured credit cards usually don’t make a big financial impact on repaying interest rates because at the low credit limits, even with high interest rates your repayment interest will be low.

Many secured credit cards will be free to open, so be wary if a company offers you low interest rates but a high annual fee or start-up costs.


If you use your secured credit card often and make regular payments then you will build a thread of good credit history.  After a year or so you can apply for other credit, such as a non-secured credit card.  If you manage this correctly too then you are well on the way to establishing good credit.  But remember that you must avoid penalties for late payment.

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