The CFPB lists secured cards among the products that help you start building credit.
A secured card builds credit with your own deposit. Pick one you can leave.
How a secured credit card works, how it differs from a prepaid or debit card, what to compare before you pay a deposit, and how to move up to an unsecured card.
A secured card is a real credit card backed by a cash deposit you put down. Your payments are reported to the credit reporting companies, so on-time payments build credit history. Choose one with a low fee, reporting to all 3 bureaus, and a clear way to get your deposit back, then use it lightly and pay it in full.
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It adds a new account with on-time payments while old problems age.
A prepaid card does not build credit. A secured card does, and it is a loan you must repay.
Fees do not build credit. On-time payments do.
How a secured card works
The CFPB gives a simple example. You put in an amount of cash, for example $500. Then you can spend up to that amount on the card. When you pay the bill, your spending amount goes back up to what you put in.
The deposit is security for the issuer. It is not a payment. You still get a statement every month and you still have to pay it.
Why it builds credit when a debit card does not
The CFPB explains that payments on a secured card are reported to the nationwide credit reporting companies, which create your credit report.
Debit cards and cash do not help, because you are not borrowing money you repay later. Prepaid cards do not help either, because you can only spend money you loaded beforehand. Neither one shows a lender that you can pay off a debt.
What to compare before you pay a deposit
Compare 5 things. The annual fee, and any other fees. The smallest deposit allowed. Whether the card reports to all 3 credit reporting companies. Whether the issuer reviews your account for a move to an unsecured card. And how you get the deposit back.
The interest rate matters less than it seems, because the plan is to never carry a balance on this card.
How to use it
Put 1 small recurring bill on the card. Set automatic payment for the full statement balance. That is enough.
Most credit scores treat payment history as the most important factor, so on-time payments are the whole point. Keep the balance low compared with the limit. With a $500 limit, a $50 charge is 10 percent, and a $400 charge is 80 percent.
What graduating means
Graduating means the issuer moves you to an unsecured card and returns your deposit. Some issuers review accounts on a schedule and do this on their own. Others ask you to apply for a different card.
Ask before you open the account: do you review secured accounts, when, and what do you look for? An issuer that cannot answer is telling you something.
Getting the deposit back
You get the deposit back when the account graduates or when you close it with the balance paid. If you close with a balance, the issuer can take what you owe from the deposit.
Before you close a secured card that is your only account, read the CFPB’s guidance on closing cards. Closing an account can change your score, so it is often better to graduate than to close.
Other ways to build credit
The CFPB lists 2 more. A credit-builder loan from a bank or credit union holds the money for you as savings while you make small payments, usually over 6 to 24 months, and then pays it out to you. A store card often comes with a low limit that is easier to get.
It suggests asking your bank, credit union, or a local nonprofit credit counseling agency which of these they offer.
What does not build credit
The CFPB is specific here. Debit cards, cash, and prepaid cards are not reported. A payday loan does not help your credit history even when you pay on time.
Be careful with any product that promises a credit score increase for a monthly fee. Ask 1 question: do you report my payments to all 3 credit reporting companies? If the answer is not a clear yes, it will not do the job.
How long it takes
There is no fixed timeline. A credit history is a record of months, so it takes months of on-time payments to build one. Check your free reports at AnnualCreditReport.com after the first few statements to confirm the account appears and the payments show as on time.
When it does, keep going. The same habit that builds the record is the one that keeps it.
Sources and scope
Check the evidence, then check the live offer.
Dean links directly to primary or government sources. Card terms and eligibility can change after the review date.
CFPB: Ways to start or rebuild a good credit historyHow secured cards and credit-builder loans work, and what does not build credit.CFPB: Why do I need a credit history?What a credit history is used for.CFPB: How do I get and keep a good credit score?Payment history and keeping balances low.CFPB: How do I get a free copy of my credit reports?Free weekly reports at AnnualCreditReport.com.CFPB: Does it hurt my credit to close a credit card?What to weigh before closing an account.