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How Much Will a Secured Credit Card Raise My Score
Thinking about getting a secured credit card to help raise your credit score, but wondering “How much will a secured credit card raise my score?” Well, continue reading to find out.
Do you have a credit score that you wish to achieve? If so, you may be wondering how far a secured credit card may help you attain your objective.
Over the course of a year, your credit score is likely to climb by close to 200 points, depending on the specifics of your credit history and your general financial situation.
To assist you understand precisely what to expect, we will examine the elements that influence your credit score, the benefits of a secured credit card, and how to select the best card for your specific scenario.
What Effect Will a Secured Credit Card Have on My Credit Score?
If you manage your secured credit card responsibly, you could notice a 200-point rise in your credit score within a year.
If you have poor credit, a score in the 500s or lower, opening three secured credit cards and a credit builder loan can raise your credit score to the 700s within a year.
A potential credit score boost will only occur if you make monthly payments on time and maintain a low credit utilization ratio.
You will also need to effectively manage the other areas of your credit.
How much and how quickly your credit score will improve will depend on your present credit score and the reasons that are dragging it down.
Initial credit score gains for persons with no credit history may be rapid and large.
Within three months, you can go from having no credit score to having a score in the 600s.
Initial credit score increases for those with weak credit may be slower, but at the end of a year, the shift will be considerably more significant.
On the other hand, your credit score may not improve at all if you mismanage this secured credit card or the other credit lines listed on your credit reports.
How Do Secured Credit Cards Aid in Credit Building?
Multiple techniques exist in which a secured credit card account can help you build credit.
For example, suppose you are just beginning your credit adventure and merely have a loan account reporting (i.e., student loan).
It may be tough to qualify for an unsecured credit card, so you decide to begin with a secured card.
You put down a security deposit of $500 in exchange for a credit limit of $500.
If you pay your account balance in full and on time each and every month, this will improve the payment history section of your credit score, which has the most impact (35 percent).
Next, you opt to charge only your $50 monthly water payment on the card.
This results in a 10 percent credit usage rate, which is the optimal level for maximizing the credit use portion of your credit score.
For each month you maintain an open secured credit card account, your credit history will grow.
And since you already have an installment loan, adding a revolving account (secured credit card) will improve your credit mix.
Now, if you have poor credit, the manner in which a secured credit card might improve your credit score differs slightly.
Why Is Your Credit Score So Low?
If you hold an excessive amount of debt, a secured credit card will assist reduce your utilization rate, which can enhance your credit score.
However, you can accelerate your progress by paying off your existing bills. For optimal outcomes, aim for a utilization rate of 10 percent or below.
When you skip a monthly payment on a bill or credit line, it can have a significant impact on your credit score.
Unfortunately, these late/missed payments or collections will remain on your credit report for some time.
By making on-time monthly payments on your new secured credit card and all other credit lines, you will be able to rebuild your credit score.
Now, let’s take a moment to consider the worst-case situation. Your poor credit is the outcome of a bankruptcy that resulted in the closure of all of your accounts.
When it comes to your credit, you’ll need to start from zero, and your poor credit history will certainly make it tough to gain the trust of financial institutions. So, how can you establish credit quickly?
As we alluded to previously, it would be prudent to open one credit-building account and three secured credit cards.
You may easily qualify for these products even if you have poor credit, and if you apply this strategy correctly, you can improve your credit score within a year.
Factors to Consider When Applying for a Secured Credit Card
Prior to obtaining a secured credit card account, there are several factors to consider.
The initial consideration is whether a secured credit card is the best option for you and your credit score.
What is your credit score currently? Why are you attempting to improve your credit rating? What are the current issues affecting your credit score negatively?
The answers to these and other questions can assist in determining whether or not a secured credit card is the best option.
If you currently have excellent credit and are looking for a minor boost, establishing a secured credit card is not the ideal option.
You can qualify for unsecured credit cards, so a secured credit card is unnecessary.
If you have no credit history, a secured credit card is an excellent alternative for establishing credit.
Additionally, you can consider creating a credit builder loan account to assist you increase your credit score more quickly.
When you have a low credit score due to a high utilization rate, getting a secured credit card may help you improve it, but you should also consider paying off your existing credit card obligations.
Attempting to demonstrate your ability to manage significant debts is another poor use for a secured credit card, given these accounts typically have modest initial credit limits.
The terms provided by the credit card issuer are an additional consideration to consider before to opening a secured credit card.
What are their pricing details? Does the credit card offer rewards? Do they report to each of the three major credit bureaus? Is there a way to obtain an unsecured credit card?
Not all secured credit cards are made equal and understanding the answers to these questions might assist you in identifying the best cards.
A secured credit card account with high monthly maintenance fees and no rewards or incentives is a poor choice.
Or a credit card that does not report to all three credit agencies may restrict your credit score increase.
A perfect secured credit card would have cheap costs, large perks/rewards, and an upgrade path to an unsecured credit card.
Will Increasing the Credit Limit on My Secured Credit Card Help My Credit Score?
In the majority of circumstances, increasing your credit limit will improve your credit score.
This is only effective if you do not use the additional credit limit to raise your spending.
Thus, your credit limitations play a significant role in the credit use portion of your score.
This is accomplished by summing the balances on all of your revolving credit cards and dividing by the total credit limits.
For the sake of simplicity, assume you have only one revolving account (your secured card) with a $500 credit limit and a $200 reported credit card balance.
This results in a credit utilization rate of 40%, which indicates that you are now utilizing 40% of your available credit.
If you increased the limit on that card to $1,000, your credit usage rate would fall to 20%.
This is excellent news for your credit score, as a lower utilization rate corresponds with a higher score.
Before increasing your credit limit, you should contact the card issuer to ensure that there will be no hard credit inquiry.
The Top Secured Credit Card Offers for 2022
There are an abundance of secured credit cards on the market. And each has its own advantages and disadvantages.
Some of the greatest cards currently available appear to offer identical benefits and assets.
Look for features such as rewards earning, no annual fees (or other costs), moderate interest rates, an upgrade path to an unsecured card, credit monitoring, and other advantages.
How Much Will a Secured Credit Card Raise My Score? Bottom Line
Choosing the finest secured credit card for your circumstances is comparable to selecting any other credit product.
You want a credit card that will assist you in establishing a solid credit score, or better yet, an amazing one.
Building credit requires patience, and the same is true when selecting and using a secured credit card. It may take time to increase your credit score by several hundred points.
Considering all the benefits of having a good credit score, the time spent will be worthwhile.
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