Secured Credit Cards & Secured Loans Can Help Build Your Credit History

August 24, 2008

Secured credit cards and secured loans are an alternative to signing up for a regular credit card in order to build your credit history.  I recently received the email below from a reader who is a recent college graduate and is looking to build up her credit history so she can buy a home in the future.

I’ve recently graduated from college with two degrees, no loans, no debt, but no credit. I didn’t take out a credit card in college. You posted about cards for college kids and I saw an old post about cards for grads and young professionals (who’ve already established credit in college).

I’m single with no dependents. I’m working full time and bringing in a steady income. I’m used to living simply and paying with cash-so I’m not swipe-happy. I realize that this helped me to learn how to budget, live with less, and stay debt free, but I want to buy a home someday.

Are there any cards out there for people who are just trying to establish credit as young professionals? I’ve been looking on bank rate, but I’m overwhelmed. What kind of card should I be looking for? I think that I fall in the gap between your two posts. I have an income, but no credit history.

The point of establishing a credit history is to prove that when you borrow money you’ll pay it back.  One popular way to borrow money is to sign up for a credit card where you’re pre-approved to spend a certain amount of money.  You agree to pay that money back within a certain amount of time or the credit card company will charge you interest on the balance you owe.

Managing Risk
The credit card company is taking on risk by lending to you using a typical credit card and will require some form of proof that you’re likely to pay back the money you borrow.  If you don’t have a prior credit history, a credit card company probably won’t want to give you a typical card but there are ways you can reduce the risk to the lender to the point where they’re willing to lend you money.

Secured Credit Cards
When you signup for a secured credit card you place a deposit with the credit card company and they give you a card with a spending limit based on the amount of your deposit.  You’re reducing the risk of lending to you by providing collateral for the money you borrow.

The credit card company will report the card details to the credit reporting agencies so make sure you pay your bills in full and on time to build up your credit profile.  Here are some of the secured credit cards you can sign up for to help build your credit history:

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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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9 Responses to Secured Credit Cards & Secured Loans Can Help Build Your Credit History

  • Personal Finance Tips

    Even if you don’t plan on applying for a loan, or getting a new apartment or a new insurance policy anytime soon, it’s a good idea to start building your credit score now so it’s there when you need it.

  • anna

    Can you please tell me how many points do you get when you put 1000 cd as collateral towards your secured loan
    thank you

  • Big Winner

    The secured credit cards look very interesting. I got a credit card with a $300 limit in high school, but my parents co-signed. Also, congrats to the letter writer for being debt free!

  • Ben

    Oops, thanks for catching the typo. It was supposed to read “This card doesn’t have an application fee …” Thanks, I fixed it.

  • Confused


    The Bank of America Secured Visa Card has a little lower annual fee than the Orchard Bank Mastercard Secured, $29, but a higher APR. This card doesn’t have an annual fee and also offers online banking. The Secured Visa Card requires a minimum deposit of $300 into a Bank of America security deposit account.



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