Secured cards, other steps to build your credit history

Secured cards, other steps to build your credit history


There’s a frustrating chicken-or-egg dilemma in the financial world: You try to get access to a credit card to build a credit history, but you can’t get approved without a history.  And this is the track record that’s used to generate your credit score. 

This can be especially frustrating for recent college graduates, even those with student loans. Unless they started making payments on that debt during school, they haven’t necessarily established credit history.

So if you keep getting rejected from credit card companies, don’t stress. There are solutions, starting with a secured credit card. 

A secured credit card is essentially a credit card with training wheels, which is designed to help you establish or rebuild credit history. The credit card company isn’t yet convinced that you’re going to be a reliable borrower, so it asks you to put down a refundable deposit. Oftentimes, your deposit functions as your credit limit. So, if you put down a $250 deposit, then you have a $250 credit limit. This collateral reduces risk for the credit card company because if you miss your payments, it can simply take your deposit to cover the debt. 

Proper use of credit cards can help you build a solid credit history.

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Small purchases on a secured card

After you have a secured card, you want to make just one or two small purchases each month and then pay off the bill on time and in full. You don’t want to spend more than 30% of your available credit limit. For a $250 credit limit, the max you want to spend is $75. A simple solution is just to put a recurring charge, like your Netflix subscription, on your credit card and then automate it to pay off each month. That way you don’t even have to carry it in your wallet. 


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