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

Secured credit cards are an option for people who typically don’t qualify for traditional credit cards. This could be someone who is new to credit and doesn't yet have a credit score, or those with bad credit who are trying to improve their credit scores. A secured credit account allows you to establish a history of on-time payments, which is the key to achieving a good credit score.

This article covers what makes a secured credit card different from an ordinary credit card, how to use a secured card to establish or build credit, and how to decide if opening a secured credit card account is a good option for you. 

How Secured Credit Cards Work

In many ways, secured credit cards are similar to traditional credit cards. A secured card is issued by a credit card company or financial institution in partnership with Visa, Mastercard, or Discover. You can use it to make purchases, just as you would with an unsecured credit card, anywhere that Visa, Mastercard, or Discover cards are accepted. Some secured cards even feature rewards programs or cash back.

What makes a credit card secured?

Of course, there are some important differences between a secured credit card and an unsecured card. In banking lingo, the term secured usually refers to a debt that is attached to some sort of collateral. When you open a secured credit card account, you must pay a cash deposit, typically around $200-$400. This deposit becomes the collateral, or security, for any debt you charge on the card. The card’s credit limit is equal to the amount of the security deposit.

Secured credit cards are mostly designed for people who need to build or rebuild their credit history. These are usually people who don’t have high enough credit scores to qualify for traditional credit cards. Lenders consider people with low or no credit scores to have a high risk of nonpayment. The deposit required for a secured credit card account reduces the risk to the bank if you don’t pay your bill.

How can I use a secured card to build credit?

These cards often charge high interest rates, so use your secured credit card wisely. Try not to spend more than you would with cash, and aim to pay your balance in full each month. By paying the full balance, you avoid paying interest and keep your credit utilization rate low. Your utilization rate, or how close your balance is to the card limit, is an important factor in calculating your credit score.

Using a secured credit card and paying the bill on time each month is a smart way to add positive entries to your credit report. Keep in mind, though, that the opposite is also true. If you pay your bill after the due date, you’ll likely be charged a late fee. The late payment could also be reported on your credit, which could significantly lower your credit score. A secured credit card can help you improve your credit standing, but only if you’re able to manage the card effectively.

Building Credit for the First Time Using a Secured Credit Card: Six Months to Your First Credit Score  

If you’ve never used credit before, you might not have a credit report at all, or you might have a credit report that doesn’t contain much information. In either case, the first step to attaining a credit score is opening a credit account. When you’re new to credit — for example, if you’ve never taken out a loan or had a credit card — it can be challenging to know how to begin. Because secured credit cards are typically available to people with poor or nonexistent credit, they can be a good starting point for establishing a positive credit history.

When you’re approved for a secured credit card, the account will typically appear on your credit report within a month. If you don’t already have a credit report, opening the secured credit card account will trigger the creation of a credit file for you.

Your First Credit Score

FICO is the most widely used credit scoring model. It pulls information from your credit report to generate your credit score, but you won’t get your first score from FICO until you’ve had an open account for at least six months. In other words, after two or three months of using your secured credit card, you’ll probably have a credit report, but not a FICO score. Although FICO dominates the credit scoring scene, there are other credit scoring models, such as VantageScore, that use different models to generate credit scores.

After six months or so, depending on the credit scoring model, you’ll be able to see your first credit score. Whether this score will be high or low depends on how consistently you’ve been using and paying off your secured credit card. It also depends on any other items on your credit report. For example, if you have other accounts that are past due or have been transferred to collections, your score will be lower than if you had only positive accounts. 

Improving Your First Score

Your credit score is based on several different factors. Your payment history is the most important component in calculating your score, so regularly paying your secured credit card bill is important. That said, even if your secured card activity has been exemplary, don’t expect your first credit score to be 850 (the highest possible score). 

Besides payment history and credit utilization, other things factor into your credit score, such as:

• The length of your credit file: Six months of on-time payments on a secured card is good, but 24 months of on-time payments is better. Paying on time with multiple accounts for 24 months is even better.

• The average age of your credit accounts: Keeping an open account in good standing for a long time leads to a higher credit score.

• The diversity of your credit portfolio: Demonstrating that you have experience with different types of accounts, such as auto loans and credit cards, increases your score.

Unfortunately for credit beginners, there is no shortcut to excellent credit. If you continue to use credit wisely, make your payments on time, and avoid maxing out your spending limits, you’ll continue to see your credit score improve.

Rebuilding Credit Using a Secured Credit Card: Months or Years 

If you’ve experienced financial hardships or made a series of credit missteps, your credit score likely suffered as a result. The bad news is that using a secured credit card isn’t a quick fix or a magical cure that can restore your credit overnight. The good news, though, is that using a secured credit card responsibly is a great first step on your road to credit recovery.

A strong history of paying your debts on time accounts for around 35% of your credit score. By using a secured credit card and paying on time each month, you can begin to establish a positive payment pattern. This will usually increase your credit score.

Of course, the other information in your credit report will also affect your credit score. If your report contains negative entries, such as a foreclosure, bankruptcy, repossession, or default, it may take longer to see dramatic changes in your score. Over time, as these negative items get older, they will have less of an impact on your score. After 7-10 years, these entries will usually drop off your credit report altogether.

The effect of a new secured credit card account on your credit score depends on your situation. Opening a new account could cause a short-term decrease in your credit score because most scoring models treat recently opened accounts as negative items. Overall, though, opening a secured credit card account usually won’t hurt your credit score. If nothing else, the account increases your total available credit, which should improve your credit utilization ratio.

The more active credit card accounts you already have, the less likely it is that a new secured card will significantly improve your credit score. It often takes many years of on-time payments to counteract a single negative entry on your credit report. The best thing you can do is to keep making small steps in the right direction.

If you’ve used credit before but haven’t had any active or open accounts within the past six months, you probably have a credit report but not a FICO score. In this case, you can usually expect to earn a credit score after using your secured credit card for six months or more. That score could be high or low, depending on how you’ve used the secured card and the other items on your credit report.

Tips for Getting the Most Out of a Secured Credit Card 

A secured credit card can be an excellent way to build or rebuild your credit history and increase your credit score. You’ll create the most positive change by keeping a few tips in mind.

Pay on time.

If you’re using a secured card to try to improve your credit, it’s very important to pay your bill on time, every time. Otherwise, in addition to late fees and penalties, you risk having late payments added to your credit report, which defeats the purpose of the secured card.

Watch your spending.

Don’t forget about your utilization rate. FICO considers a good credit utilization rate to be less than 30%, so try to keep your card balance below 30% of your spending limit. To calculate this number, you can multiply your card limit by 0.3. Secured credit cards tend to have very low credit limits, so you shouldn’t plan to use your secured credit card for more than minor purchases. In some cases, you may have the option to increase your credit limit by paying a larger security deposit, but be careful not to take on more debt than you can handle.

Make payments in full.

Contrary to popular belief, you don’t need to carry a revolving balance to boost your credit score. You can keep your credit utilization rate low and avoid hefty interest charges by paying your balance in full each month.

Track your progress.

Monitor your credit reports regularly to ensure that your payments are reported correctly and that older negative items are removed on time. It’s also a good idea to periodically review all the information in your report to ensure that there are no inaccuracies. Ordinarily, you’re entitled to a free credit report once every 12 months from each of the three major credit bureaus: TransUnion, Equifax, and Experian. Due to the COVID-19 pandemic, you can access free reports from all three credit reporting agencies once each week through April 2022.

Prepare for the next step.

After you’ve used your secured credit card responsibly for a while, the card issuer may automatically upgrade your account to a traditional, unsecured credit line. In this case, your credit limit typically increases, and the card issuer usually refunds your security deposit to you. Some card issuers, though, won’t refund your security deposit unless you close your account. Closing your oldest credit card account could hurt your credit score, so it may be smarter to keep the account open, even if you decide to apply for a separate, traditional credit card. 

Pros and Cons of Secured vs. Unsecured Credit Cards for Building Credit 

Is a secured credit card better than an ordinary, unsecured credit card for building or rebuilding credit? Well, sometimes. The right solution for you ultimately depends on your situation. If your current credit score is low or very low due to recent negative credit entries, a secured card may be your only option because you may not qualify for other cards. On the other hand, if you are brand new to credit, or your credit score is low or fair, you may qualify for both secured and unsecured credit cards. 

From a credit score standpoint, the FICO scoring model doesn’t distinguish between secured and unsecured credit cards. If you’re working on building or rebuilding your credit, consider the total cost of using either type of card, including the interest rate, any annual fees or other charges, and any rewards or incentives. 

If you don’t currently have a credit score and you have enough money in your checking account, keep in mind that many secured credit card issuers will allow you to increase your spending limit if you pay a larger security deposit.

Let’s Summarize... 

If you have a low credit score or if you don’t currently have a score at all, a secured credit card may be a wise option. These cards require a security deposit so they’re less risky for lenders. Because of this, they’re available to more people, even people with bad credit or no credit.

If you’ve never used credit before, a secured credit card can help you establish a credit history. After using the card for about six months, you’ll usually be assigned a FICO score. You can use a secured card to build or improve your credit report and increase your credit score, so long as you use the card responsibly. Smart card use means spending less than your credit limit, paying your bill on time, and paying your balance in full each month. Remember: you don’t need to pay interest to improve your score.