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Credit Tips

Rebuild Credit Using Secured Cards

When you can't get approved for unsecured credit cards due to bad credit, bankruptcy, or no credit, using a secured card and making payments on time can help rebuild bad credit. Later try to get approved for an unsecured card if your credit has improved.

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Can Secured Cards become Unsecured Credit Cards?

Yes, some secured cards can be converted over to an unsecured credit card. This is possible with some companies after the cardholder makes payments on time over months and has proved they can be responsible with credit. Not all secured card companies convert to unsecured cards.

Using a secured card means the cardholder must make a deposit toward the credit limit on the account. The creditor uses the deposit as security if the cardholder defaults on the card payments.

Security deposits on secured cards can be from 50% to 100% of the deposit the cardholder makes and so can the credit limit. For example a deposit of $100 could mean the credit limit is $50 to $100. Check the terms for the card.

Secured credit cards usually have fees that unsecured credit cards do not have such as processing fees or annual fees. Beware of secured cards with high fees as this can greatly reduce your deposit and credit limit.

Even if you find a good secured card with low fees and the card does not convert to an unsecured credit card, if your payment history is great, you increase your chances of getting approved for an unsecured credit card with another company. Before you apply for a secured credit card make sure the creditor reports to all three major credit bureaus. If the creditor does not report payment habits, the card will not help you in re-establishing your credit.

Good payment habits are the best way to rebuild bad credit history. No reporting means no payment history will be on your credit report or in your credit score.

Most secured credit cards are accepted worldwide, have fraud prevention, online management, are easy to fund, and report to credit bureaus. They can features like online bill pay and email alerts. Secured card offers can be guaranteed, no credit check cards, and some report to all three credit bureaus.