How to Start Building Credit: Secured Credit Cards

Posted on 20. Jun, 2007 by in Credit & Debt, Saving & Investing

creditcards1.jpgA friend of mine at work recently asked me an interesting question. He’s here in the US temporarily on a “global exchange program” and was wondering how to start building his credit so that he could eventually take out a car loan, buy a condo, or just get a credit card with some points.

It was an interesting question because I had always taken my credit history for granted. For as long as I can remember I have received credit card offers in the mail… from banks and lending institutions just waiting to give me credit. And my first credit card – a student credit card with a limit of $500 – was my first step at establishing credit.

But for many recent immigrants, and even young college students or college grads have the same question… how do I start building credit. The obvious answer is “open a credit account or take out a loan,” however if you have no credit history to begin with, this is almost impossible. It’s a catch-22 scenario that many people run into. You need to get credit to build credit, but you need to have a credit history in order to get credit in the first place…

One solution to this “credit paradox” is to apply for a secured credit card.

Secured credit cards work just like normal credit cards but require a deposit – usually between $99 and $500 – to protect against you skipping town without paying the bill. Most cards come with an annual fee for the “convenience,” but the fees are getting lower and are a small price to pay.

It’s important, however, to recognize that many institutions have taken advantage of people in the position of needing a secured credit card and have charged them outrageous fees. In fact, the Federal Trade Commission has issued warnings about deceptive ads ands scams for companies offering



There are a few things that you can do to establish good credit and avoid being scammed.

1. Shop Around: Look for a card that doesn’t charge an application fee. Although most cards charge an annual fee, the cards and their terms vary dramatically. Be sure to read the fine print. Some people have gotten secured cards and found their entire limit consumed with fees before they ever used the card. One place to start shopping is the list of secured credit cards at

2. Be Aware: As mentioned above, there are some institutions that treat their customers like cattle. Be aware of the bogus fees such as “insurance polices” or “convenience fees.” You should only be paying a reasonable annual fee.

3. Report Your Good Credit Activities: The entire purpose of obtaining a secured credit card is to build credit. You don’t need to purchase a lot, but make a few small purchases on your new credit card and pay your balance in full and on time. Secured cards carry a higher interest rate than most, so be sure to make small purchases that you can afford to pay off on time. But be sure to ask the credit card issuer to flag your good behavior to the credit bureaus as a secured card. If your good behavior isn’t reported, it defeats the purpose of the card.

4. Be Patient: You might not want to hear this one, but it is going to take time to build up that credit score. After about a year of making on-time payments, your credit card issuer will most likely want to keep you as a customer and should be willing to give you an unsecured credit card. Just ask. But if they refuse, try applying to a different lender or even the bank where your personal accounts are held. With a clean credit history, most banks would jump at the chance to get your business.

Secured credit cards can be a credit lifesaver… as long as you’re smart when shopping for one and use it wisely. And hopefully by starting with a secured card you can develop good credit card habits that you can use later with an unsecured card.

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9 Responses to “How to Start Building Credit: Secured Credit Cards”

  1. Nora

    22. Jun, 2007

    Thank you very much, this information is very useful, I haven’t been able to find it anywhere else.

  2. indebted

    24. Jun, 2007

    A good idea would be to try to avoid the unsolicited offers that just arrive by the dozen in the mail. Avoid any credit card offers by email as well.

  3. Compare credit cards

    19. Sep, 2007

    Wow! Nice article, I have got very good information about the credit cards here. It is very useful for modern life.

  4. builderofcredit

    25. Sep, 2007

    The tips you’ve mentioned are really effective. Hope to see more posts like these.

  5. Credit Cards

    11. Oct, 2007

    Hello. If you are credit challenged, and you won’t to build a credit, you may think that you have no options when it comes to obtaining credit cards. However, with the multitude of banks offering credit cards today, you do have choices if you know where to look. There are a number of credit cards available to you whether you have good credit, bad credit, or average credit

  6. Tom Mayer

    15. Nov, 2007

    Improving a credit is a hard process, really. So even if you needn’t to get a credit card today, apply for a secured plastic anyway. It will help you to build your credit history step by step.

  7. Ben

    14. Jul, 2009

    Which one would be better to apply as a new to credit history to build a good credit history…
    Unsecured First Premier card or a Secured Bank of America credit card

  8. steve mounds

    04. Jan, 2010

    I think the unsecured is better. I found a company by the name of which offers an unsecured retail credit card that reports to the bureaus. I was approved for 2500 in less then 24 hours. From what I understand the payment history is what you need to get more credit. It seems almost like a catch 22. Good luck


  1. secured-credit-card » Blog Archive » How to Start Building Credit: Secured Credit Cards - September 18, 2007

    […] Original post by Jason Guthrie […]

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