How Much Can a Secured Credit Card Raise Your Score?

Secured credit cards offer a pathway for individuals to establish or rebuild their credit history. These cards function as a tool to demonstrate responsible financial behavior, which can lead to improvements in one’s credit score over time.

Understanding Secured Credit Cards

A secured credit card differs from a traditional unsecured credit card by requiring a security deposit. This deposit serves as collateral for the credit line and usually matches the card’s credit limit. This mechanism reduces the risk for card issuers, making secured cards accessible to those with limited or damaged credit histories.

The card functions like a regular credit card for purchases, but the funds are drawn from the available credit limit, not directly from the security deposit. Secured credit card activity, including payments and balances, is reported to the major credit bureaus. This reporting allows responsible use to positively influence a cardholder’s credit profile. Individuals who are new to credit, have no credit score, or are working to repair past credit challenges often benefit from using secured cards.

The Mechanism of Credit Score Improvement

A secured credit card contributes to credit score improvement by influencing key components that credit scoring models consider. Payment history holds the most weight in both FICO (35%) and VantageScore (40-41%) calculations. Consistent, timely payments on a secured card demonstrate reliability to lenders.

Credit utilization, the amount of credit used compared to the total available credit, is another significant factor, accounting for 30% of a FICO Score and 20-34% of a VantageScore. Keeping balances low relative to the credit limit positively affects this ratio. The length of credit history (15% for FICO, 20-21% for VantageScore) also benefits from maintaining the secured card account over time.

The mix of credit (10% for FICO, considered in “depth of credit” for VantageScore) and new credit (10% for FICO, 5-11% for VantageScore) also play roles. A secured card adds a revolving credit account to one’s credit mix. Score improvement varies depending on an individual’s starting credit score, financial habits, and how consistently they manage the card.

Strategies for Building Credit

To maximize credit score improvement with a secured credit card, consistent and responsible use is important. Paying the full balance on time, or at least the minimum payment by the due date, is the most impactful action. Late payments significantly hurt credit scores.

Maintaining a low credit utilization ratio is also important. Experts recommend keeping the amount owed below 30% of the credit limit. For example, on a $200 limit, a balance of $60 or less is effective. Many people with excellent credit scores maintain utilization in the single digits, or even close to zero.

Monitor credit reports regularly for accuracy and to track progress. Free annual credit reports are available from the three major credit bureaus. Avoiding too many new credit accounts simultaneously can also help, as each new application can lead to a temporary dip in the score.

Moving Beyond Secured Credit

The objective of using a secured credit card is to transition to an unsecured card. Many secured card issuers provide a “graduation” path, automatically reviewing account activity. This review typically occurs after consistent, responsible use, such as six to eighteen months of on-time payments and low credit utilization.

Upon graduation, the security deposit is refunded to the cardholder. The account may convert to an unsecured card with the same account number, which is beneficial for the length of credit history, or the cardholder may be offered a new unsecured product. If a secured card does not offer a clear graduation path, or if a cardholder closes the account, the deposit is refundable once the balance is paid in full. Closing the oldest account can shorten the average age of accounts on a credit report, which could impact credit scores.