A credit score, also called the FICO score, refers to the creditworthiness of an individual. Banks and other financial companies depend on your credit situation to decide whether to give you loans and the amount to loan you. If you are the sort that pays loans later than the due date or never pays at all, then you get low credit scores. However, if you have bad credit scores, you can still apply for a secured credit card to grow your credit scores. But how long does it take to build credit with a secured credit card?
I will take you through the process of applying for a secured credit card, as well as the duration it will take for your negative listing to be out of the bureaus. Financial institutions usually report your credit usage to the credit bureaus. These institutions have the mandate to keep records of how borrowers pay or use their lines of credit. We have three main credit bureaus in the US. They include Experian, Equifax, and TransUnion.
You are entitled to a free report from each of the three credit bureaus. The report contains credit scores, among other details. You usually get credit scores depending on how you repay your loans. It is crucial to note that the credit report may have some errors. A bank or any other financial institution may send incorrect details that may affect your credit report. Someone may also use your identity and misuse their accounts only for you to get a bad report.
How are credit scores calculated?
There is a procedure that the credit bureaus use to get the FICO scores. The formula is universal for all credit bureaus to ensure that they come with consistent results. Various factors affect your scoring. They include the following.
- New credit
- The types of accounts
- Your payment history
- The credit you have used vs. the available credit
- The length of your credit history
Let us look at each one of them in detail.
i) The payment history
Credit bureaus usually check your payment history. They check how you have been paying loans issued to you by various institutions. Generally, they check how you used installment loans, credit cards, retail department store accounts, auto loans, finance company accounts, student loans, home equity loans, and mortgage loans.
Your payment history contributes up to 35% of the overall credit scores. That means the poorer your credit history, the poorer your credit scores. It is important to note that your payment history will show the credit bureau and any lender or creditor details on your bankruptcies, late or missed payments, and collection information.
ii) The credit you have used vs. the available
If you use less credit than the limit offered, you will likely have some good credits. However, if you spend a lot of your credit limits, you will likely harm your scores. The portion, which shows the amount owed, will contribute around 30% of your overall credit scores. So now you have to ensure that you utilize the lowest credit as much as possible.
iii) The types of accounts
If you utilize different accounts to satisfy your quest for loans, you have mixed your credit. Credit mix contributes up to 10% of the overall credit scores. You can mix your credit by taking a line of credit, mortgage loans, auto loans, student loans, among others. You have to ensure that you pay all the loans in good time and the right amounts.
iii) Length of your credit history
The length of your credit history makes about 15% of your credit scores. It refers to the duration you have been borrowing. Banks and other financial institutions trust someone who has been borrowing for a long time and shows good trends in their loan repayments.
If you started taking loans recently, your scores are still low. No lender is sure how you will behave later on. You might get a line of credit or any other loan, but it will be lower than someone who has been borrowing for a long time.
iv) New credit
New credit contributes up to 10% of your credit scores. If you constantly get new credits now and then and utilize them correctly, your scores will improve.
It is essential to understand that FICO scores range from 300-850. 300 represent the worst scores, while 850 represents excellent credit scores. The table below shows how different credit scores count. They are also called Vantage Score 3.0
|Credit score ranges||Credit score rating|
How do I get a credit card?
You can get a credit card only when you make an application from the institution of choice. You can apply online or at a physical branch. However, online application is faster and convenient since you do not need to line up at a physical branch to get the services.
Before making your application, you have to know your credit scores. You can get your credit scores from the credit bureaus I mentioned earlier, i.e., Experian, TransUnion, and Equifax. Your scores will help you to find the best credit card for your needs.
Once you have known your credit scores, you can then hover around various bank websites and see which credit cards match your credit scores. You will also look at other factors such as annual fees, monthly fees, interest rate, and credit limit.
Next, you will start your application for the card of your choice online. You will input all the details needed in the form. Before submitting, you will need to read the terms and conditions, then agree before submitting. You will then wait for approval. But what credit card can I get with bad credit? Well, a secured credit card is the best to use if you have bad credit.
How to apply for a secured credit card
A secured credit card is different from an unsecured credit card in that you need to deposit some money in your account to act as security. A secured credit card is good if you have a bad credit history or you do not have any credit history.
You do not need any credit scores to apply for a secured credit card since you have already deposited funds for security. Your issuer only needs your application details, and no need to pull a hard credit inquiry. Once approved, you will wait for two to three weeks to receive the card.
You will deposit the required amount before getting the card, after which you will borrow against your deposit. If you use the secured credit card properly, you will grow your credit scores over time.
How long does it take to build credit with a secured credit card?
Once you start using your credit card to build scores, you will not grow your scores immediately. It has to take some time for you to achieve good credit scores.
Usually, it takes up to six months to improve your credit scores when using your secured credit card. You have to use your card responsibly to be able to attain good scores. Generally, using a secured credit card can help you to repair bad credit, establish a credit history, and improve your overall rating.
You have to be very careful with checking whether a credit card issuer reports to credit bureaus. Some secured credit card issuers do not report to credit bureaus, and thus, you may not meet your goal of growing your scores.
How to improve your credit scores
Having a secured credit card does not imply that you will necessarily improve your credit scores. You have to follow certain usage practices to ensure that you get the best out of your card. The following are ways to ensure you get the best out of your secured credit card.
1) Maintain a low credit utilization
You should not use much of your credit limit since that affects you negatively. You should use at most 30% of your credit limit. Using too much of your credit limit shows that you are not responsible.
2) Pay your debts on time
If you pay your bills in good time, you will gain credit scores with time. If you delay, your credit card issuer will report you negatively to the credit bureaus. A time comes when they have to get the funds you deposited as security to repay your loan.
3) Get a credit card that reports to the credit bureaus
As I mentioned earlier, some credit companies do not report secured credit card usage to the credit bureaus. Therefore, it is essential to ask your card issuer whether they report to credit bureaus. If they don’t, try a different card from a different issuer.
4) Only apply for credit when in need.
Do not get credit cards just for the sake of getting one. You need to apply when in need. The more you apply for credits, the more your scores drop since the banks make hard inquiries when you apply for the credits.
A credit score refers to an individual’s creditworthiness. It measures your ability to pay loans and lines of credit. Financial institutions report your credit usage to credit bureaus. There are three major credit bureaus which include Experian, TransUnion, and Equifax. You are entitled to a single report every year from each of the credit bureaus. One can obtain a secured credit card to build your credit scores.