Secured credit cards are designed for people who the banks consider to be the riskiest borrowers based on their credit score. Secured credit card products allow people with bad credit scores an opportunity to start rebuilding it.

In exchange for issuing risky borrowers a credit card, the banks want the credit cards to be “secured” via a cash deposit from the borrower. The cash deposit acts as collateral for the bank. Should the borrower not pay their bills, then the bank can take the cash deposit away.

Using a secured credit card doesn’t mean you’re a bad person! Life happens. Sometimes your credit score is low through circumstances completely out of your control. Maybe you’ve never had a credit product before so there’s no credit score to speak of. Maybe there was a medical emergency that forced you to take out money using your credit card.

Regardless of why you have a low or non-existent credit score, there are ways for you to start rebuilding it through a secured credit card.

Secured Credit Cards Can Help You Rebuild Credit

A secured credit card is a win-win situation for both the bank and the borrower as it lowers the risk for the bank while also allowing the borrower a chance to prove that they will pay their bills on time.

So how should you use a secured credit card to help rebuild your credit? We would recommend following these steps:

  • Pick a secured credit card. Our three favorite secured credit cards are the Capital One Secured MasterCard, Discover It Secured Card, and the Citi Secured MasterCard.
  • Don’t spend more than 20% of your limit. If your secured credit card has a limit of $500, then don’t spend more than $100 on it. This will keep your credit utilization in the range where the bank is comfortable that you will be able to easily make the payments.
  • Make your payments on time. Now that you have a secured credit card, make sure you pay off the full statement balance every single month! On time payments is the single most important factor if you want to have a good credit score. The on time payment history will indicate to the credit bureaus that you’re a responsible borrower – and credit bureaus love people who pay on time all the time.