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If you have no credit, or bad credit, it’s time to level the score. There are only five categories that affect your rating: payment history (35%), usage ratio (30%), length of credit history (15%), credit mix (10%) and new credit (10%). Here’s an important tidbit: since payment history is 35% of your credit score, it is impossible to build good credit without reestablishing a positive payment history. The first step is getting  a secured credit card. So how does it work? It’s simple. The bank that issues you the credit card requires you to pre-pay the entire credit limit and that money is put on hold and used as collateral in case you default. The goal is to slowly rebuild a history of consistent repayment. After a few months or years of showing reliability, your credit score goes up and you will start to receive offers for more traditional cards.

Ready to get that score up. Here’s how.


1) Find out who offers a secured credit card.

Check’s list of secured credit card issuers to get a good idea of who offers what. If you belong to a credit union, ask them about their secured loan products. Most credit unions may give you a lower interest rate and/or waive any annual fees.


2) Compare the different cards to determine what kind of charges will be assessed

All secured cards charge an annual fee but application fees aren’t standard. Make sure that you read the fine print. Secured cards are designed for those with bad or no credit, so some unscrupulous lenders have taken advantage of those who are actively trying to revamp their lives by loading the lines of credit unfair charges. Shop around, and look for those with the lowest interest rates and fees.


3) Make sure you choose a lender who reports to all three major credit bureaus

Let’s be clear, the only reason you want or need a secured credit card is to build or rebuild your credit. In making a decision as to which lender you are going to apply with, ensure you ask whether they report to the big three credit bureaus (Transunion, Equifax, Experian).


4) Figure out how much you can afford to deposit and choose a card

Now that you have identified a lender, figure out how much you can afford to deposit. The amount you can deposit will vary by issuer, but most start as low as $250 and go as high as $5,000. Your credit limit will either be the amount of your deposit or some percentage above that amount. (Keep in mind that once you make an initial deposit you CANNOT add more money later.)


5) Make the best use of your secured card to build your credit rating

Your main objective in getting a secured card is to show creditors that you can pay your bills on time. DO NOT use the card if you CANNOT pay your bill in full every month. Buy a few things then pay it off. Make sure you are staying between 20% and 30% of your credit limit in order to keep your usage ratio in good standing. For example. if you have a $1,000 credit limit, spend $300 maximum. You’re on your way to level upping your credit score. Remember, secured credit cards are a tool to build or rebuild credit. Once you have reestablished yourself in the credit world, it is important that you get a credit card that doesn’t charge an annual fee.

Want to know more about money, investments and credit? Check out Ash Cash (aka Mr. Money) at @IamAshCash.