Secured cards · continued
Secured Credit Cards
Common Misconceptions to Avoid
A frequent misunderstanding is that the deposit is a fee or that it is spent when you make purchases. It is neither; it is refundable collateral that you get back in good standing, and you pay for your purchases separately through your monthly bill. Another myth is that secured cards do not build credit as effectively as regular cards. They build credit through the exact same reporting mechanism, so a well-used secured card is just as powerful for your score.
People also sometimes assume that a bigger deposit automatically means faster credit improvement. What drives improvement is your behavior, on-time payments and low utilization, not the size of the deposit itself, though a larger limit can make it easier to keep utilization low. Finally, do not confuse secured credit cards with prepaid cards; only the former report to the bureaus and build credit.
Graduating to an Unsecured Card
The goal of a secured card is to become unnecessary. After a stretch of responsible use, commonly several months to a year, many issuers review your account and may graduate you to an unsecured card, refunding your deposit and often raising your limit. Some cards do this automatically; with others you request an upgrade or apply for a new unsecured card once your improved score qualifies you.
Watch for the signs that you are ready: a consistent record of on-time payments, low utilization, and a rising score. When you graduate or move on, consider keeping the account open if it has no fee, since a longer credit history and more available credit both help your score. Getting your deposit back while stepping up to a better card is the natural, satisfying end to the secured-card journey.
Advertiser disclosure: general information only, not financial advice. Confirm current terms on the issuer's official site before applying.