Many people use secured credit cards to build credit when they have a "thin" credit history file, or when they're rebuilding their credit scores after a bankruptcy. But how effective are secured credit cards at building credit, and how much can your score increase when managing credit well?
Motley Fool analysts Michael Douglass and Nathan Hamilton answer a user-submitted question about this topic in the video below. Tune in to uncover how long it takes to go from building credit to securing good or excellent credit.
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Michael Douglass: Eric asks, "How effective are secured credit cards, and how long can you wait for real-time results?
Nathan Hamilton: Effective.
Douglass: They can be, highly. Building that credit, if you have no file, or if you have a bad credit history. At a certain point, if you, for example, declared bankruptcy and got several collections on your account or something like that, the regular credit card companies won't necessarily see you necessary as a good credit risk. That's where a secured credit card can be your chance to say, "Listen, I've done this, I've paid my dues," and get back into the regular pool.
Hamilton: Yeah. Breaking that question down, how fast will you see results to get a good credit score, which is 700-plus, how fast will it be to get an excellent credit score, which is 750-plus to 850, which is where it peaks. If you are managing your balance as well, if you have a good mix of accounts, if you're paying your bills on time, if you're not overextending yourself, with a secured credit card, you could probably look at one to two years of having something in the 700s, assuming you're doing well with your finances. But to get the scores really up there, it just takes time. That's going to be more than one to two years, to get into excellent credit score history territory. One of the factors, as we mentioned before, is you need to show at least five years as your average account age. Of course, that takes time to do it.
Douglass: Yeah. Time is all you have here, it heals all wounds and hopefully boosts all credit scores, if you're doing everything else right.