“Secured cards are perfect for people with thin or damaged credit files,” says credit expert Erica Sandberg, like college students, new grads, or folks who are unemployed.
A secured card is not a prepaid card—a prepaid card can’t improve your credit record because it’s not actually a line of credit (it’s more like a debit card).
Here’s how it works, ideally:
- Submit a “security deposit” (generally $300-plus) to generate a line of credit. Bonus: your credit limit may exceed the deposit.
- Use the card like a credit card, and pay it off each month. (Your deposit doesn’t cover what you owe; it’s just a deposit in case you default.)
- Your bank reports your sterling usage to the major credit bureaus.
- You begin receiving offers for standard credit cards. Some banks automatically review your account after 12 months and “graduate” you to an unsecured card.
Just remember: Secured cards don’t offer the best terms, so shop around—and make it your goal to get to a standard card soon.