Build Credit with $10 a Month on a Secured Card

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Updated on Thursday, May 13, 2021

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When I moved to the U.S. with my wife, Margarita, after living in Moscow, she was not a U.S. citizen and had no credit history or credit score. If you don’t have a credit score in the U.S. this basically means you don’t exist in the eyes of lenders. In fact, one in 10 Americans is considered “credit invisible,” meaning they don’t have enough credit history to produce a credit score.

This was a problem we knew we had to fix, especially if she wanted be able to take out credit cards or an auto loan, or even apply for an apartment lease or mortgage in the future.

By following a few basic steps, within 12 months, she had a very good credit score. Within 18 months, she had an excellent credit score and qualified for a rewards credit card with a $25,000 credit limit.

How a secured credit card can help build a credit score fast

Secured cards are geared toward people looking to build or rebuild their credit score. They differ from unsecured credit cards in that the issuer requires a deposit of typically $200 that will serve as your line of credit as opposed to an unsecured card where the bank provides a credit line from which you can borrow. The deposit serves as protection for the issuer in case the cardholder does not pay back what is charged to the card.

Opening a secured credit card is relatively easy as many of the top credit card issuers, such as Discover, Capital One and Citi, as well as some credit unions, offer one.

The bank will keep the deposit as collateral and will provide you with a credit limit equal to your deposit — and some cards may even give you a higher limit without requiring a larger deposit. And if you fail to pay your credit card on time, the bank can take your deposit and apply it toward the debt.

So the bank has a guarantee that it won’t lose money. And you have the opportunity to prove that you can use credit wisely by keeping a low balance and paying it off in full every month on time.

Once open, the credit card works like any other. Your credit limit, balance and payment information should be reported to the three major credit bureaus, although not all secured cards do that, so before you apply make sure the card you choose does report the account to all three credit bureaus (Equifax, Experian and TransUnion).

How to use a secured credit card

To make sure you manage your new secured card responsibly, which will help build your credit score, here are some of the best strategies:

  • Use the card every month, but for a very small amount. A monthly charge of $10 a month should be sufficient.
  • Make sure you pay the balance in full and on time every month by signing up for automatic payments either through the card issuer or through your bank online.
  • Keep track of your credit score progress with a free credit score tool, such as Discover’s Credit Scorecard (you don’t have to be a Discover cardholder to sign up) or through the LendingTree app.

It took about six months for Margarita’s score to cross the 600 threshold. About 18 months after starting, she had a score well above 700. At that point, she applied for a rewards credit card. It had a great sign-on bonus and a $25,000 credit limit.

So it only took a year and a half for someone to go from being a credit nobody to one of the most sought-after customers in the country. What was the trick? It is actually very simple.

3 key rules to follow

Use your card every month

In order to have a FICO® Score, you must have activity on your credit report over the past six months. If there is no activity on your report during this time, you cannot get a score.

Activity does not mean you need to go into debt. You can make a single purchase every month (even for just $1) and pay the bill and that is considered activity.

Keep your utilization low

One of the most important components of your credit score is utilization, which comprises 30% of your FICO® Score. Your utilization is calculated by dividing your statement balance by your total available credit. People with the best credit scores have utilization levels of 10% or less, but at most, you want to stay below 30%. That means if you have a credit limit of $200, you should not spend more than $60 a month on the card.

The best strategy with a secured credit card is to select one small, recurring transaction and automate the payment so you don’t forget to pay it. For example, you could use your secured credit card to pay for your monthly Netflix or Spotify bill.

Pay your bill in full and on time every month

The most important factor of your credit score is a history of on-time payments. This comprises 35% of your FICO® Score. Even a single missed payment can have a very negative impact on your score. The best way to ensure  you don’t miss a payment is to set up autopay.

Additionally, make sure you pay your balance in full, so you don’t have to pay interest as secured cards tend to have very high APRs. Remember: Your credit limit is equal to your deposit. You are literally borrowing your own money. But if you pay interest (at a high rate), you will be paying a bank to borrow from yourself.

If you want to use a secured credit card to build your credit score, just use it every month for a $10 charge. And pay that balance in full and on time. As a result, your score should improve.

How to select the best secured credit card for you

When selecting a secured credit card, we recommend you focus on the annual fee — you shouldn’t have to pay one. The first place to start looking for one is with your bank or credit union. You can also visit other major card issuer websites, such as Discover, Capital One® or Wells Fargo, to name a few..

Most secured cards require an initial $200 security deposit, but you can receive it back if: 1. You pay your balance in full and close your credit card account, 2. You qualify to be refunded your deposit if your card issuer conducts monthly automatic account reviews (Discover starts at eight months from account opening) and 3. You upgrade to an unsecured card.

Again, before applying, make sure the card specifically states that it reports account and payment activity to all three credit bureaus. If it only reports to one credit bureau, then you risk not having a credit score from the other two, which can backfire when you apply for a future loan or credit from a financial institution that relies on information a credit bureau that doesn’t show any activity from you.

Upgrading from a secured card to a traditional, unsecured card

Typically, for secured cards from the major issuers such as Discover, Capital One® and Citi®, upgrading from a secured card to unsecured card involves:

  1. An automatic review process. This checks your eligibility for an unsecured card. The review process varies by issuer, with some cards starting it eight months from account opening and others waiting until 18 months.
  2. Receive your security deposit back. If you qualify for an upgrade and your balance is paid in full, you will receive your security deposit back.
  3. Receive an unsecured card. In addition to receiving your security deposit back, you will be transitioned to a traditional, unsecured card.

If your card doesn’t have an automatic upgrade process, we recommend the following:

  1. Check your credit score often to track your progress toward building credit.
  2. Search for a new card that fits your credit score. There are plenty of options for fair, good or excellent credit — and the better your score, the more options available to you.
  3. Check for pre-qualification. Before you apply for a new card, check to see if there’s a pre-qualification feature. This allows you to check your approval odds and shop around for your best offer without hurting your credit score. But keep in mind that pre-qualification isn’t a guarantee of approval.