Do Secured Credit Cards Help Credit?

Secured credit cards are designed to allow people who do not qualify for a regular credit card to be able to use credit. For a secured credit card, the cardholder deposits money in a savings account at a bank and gets a secured card with a line of credit equal to the deposit amount. Using a secured credit card regularly and responsibly can help you build a positive credit history and increase your credit score.

Credit Reporting

A secured credit card will only help your credit score if the credit card company reports to the major credit bureaus. Before signing up for the card, ask if the company will send monthly data about your account to Experian, Equifax and TransUnion. If the company does not report to these credit bureaus, the information about your account will never make it onto the credit reports that are used to generate your credit score.

Responsible Use

Use the card responsibly to help your credit score. Never charge more than your credit limit on the card. MSN Money recommends not charging more than 30 percent of the credit limit to keep your ratio of balance owed to total credit low. In addition, pay the bill on time every month to develop a consistent payment history. If possible, pay the bill in full so you do not get yourself into more debt than you can handle.

Time Frame

You might see a slight drop in your credit score when you first apply for a secured credit card. This is because the application generates an inquiry and creates a new account, both of which hurt your score slightly. However, as soon as you start making on-time payments, you will begin to see your score increase. After 12 to 18 months of on-time payments, your credit score will definitely have benefited from using the secured card. At this point, ask the credit card company to change your account to an unsecured card and return your deposit.

Considerations

Some secured credit cards are better than others. When you are shopping for a card, look for one with no application fee and an annual fee of less than $50, according to Bankrate. Ensure that the card has a grace period, meaning that the card does not charge interest on new purchases if you paid the previous bill in full by the due date. This will allow you to build credit at the lowest personal expense.