This Credit Card Could Be the Ticket to Building Credit From Scratch

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  • You need to show you can borrow responsibly in order to build credit.
  • Showing you can borrow requires someone to extend credit to you.
  • A secured card could be one of your best options for being able to borrow if you don't have a credit record.

Applying for it could help you build a great credit score. 

In order to earn a good credit score, you need to show you can pay your debts on time. You also need to show you won't max out the line of credit extended to you. And you need to have a mix of different kinds of credit, as well as a long credit history if you want to get the highest possible credit score.

Reading about these factors that allow you to earn a good credit score, you may notice they all have one thing in common. You must be able to borrow in order to start developing a long credit history; to show you can make on-time payments; to prove you have a good mix of credit; and to show you aren't maxing out your accounts. 

Unfortunately, this creates a difficult conundrum for those looking to build credit. You need a good credit score in order to be able to borrow, and you must be able to borrow to earn a good credit score. The good news is, there actually is a solution to this problem for those looking to build credit from scratch: You can apply for a specific type of credit card.

Could this credit card help you earn a great credit score?

If you have no credit history and want to earn a good credit score, you should seriously consider applying for a secured credit card. That's because a secured card is available to just about anyone, and it can help you with several of the key factors that affect your credit record.

Secured credit cards are offered by many different card issuers. They are easily accessible because they work differently from standard credit cards or other kinds of loans. See, most credit cards and many other kinds of debt are unsecured. There is no collateral associated with them, and the lender only has your word to guarantee they'll be repaid. If you don't pay as promised, it can be difficult and expensive for creditors to try to recover the unpaid balance. 

But with secured cards, you make a deposit into a special account and you get a line of credit equal to the deposited amount. So, for example, if you were given a $500 credit line with a secured card, you would have to make a $500 deposit with the card issuer in order to gain access to that credit.

There's no risk to a lender with a secured card, so even if you have no credit history at all or if you have recently filed for bankruptcy, lenders should generally approve you for one.

How does a secured card help you build credit?

A secured credit card is a great way to build credit from scratch because you can get approved without a good credit score, and you can start making responsible borrowing choices that will help your credit record develop positively. 

See, most card issuers will report your payment history as well as your credit usage with a secured card. So if you keep your credit utilization ratio low and you pay on time, this will show up on your credit report. Over time, the positive data that's being reported will open up the doors to other types of borrowing and you'll be able to get approved for unsecured cards and loans at affordable rates.

If you're hoping to borrow in the future but have no credit history now, consider applying for a secured card ASAP so you can start the process of building the type of credit report that will open doors for you later in life.

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