Secured credit cards: A low-risk approach to building credit

Table of contents

1. How a secured credit card is different from a typical card
2. Credit scores 201: Why they matter and how to build yours
3. Why secured credit cards make sense for starters
4. Best practices for holding on to good credit
5. Raising your hand for a secured credit card?

A credit card is among the most common tools for establishing a credit score when you’re starting out in the world. Once you establish good credit behaviors, you may become a candidate for a car loan, mortgage, and other borrowing options.

However, a traditional unsecured credit card also can be risky for someone with little borrowing experience or those who have had difficulties managing a credit card in the past.

There is an alternative many financial experts endorse: a secured credit card.

How a secured credit card is different from a typical card

A secured credit card offers a low-risk approach to establishing a credit history for consumers who are starting out as borrowers, or anyone who needs a second shake at rebuilding credit and restoring a low credit score.

Our Visa® Secured Credit Card is a highly controllable option because your borrowing power is limited. Here's how it works:

1. Apply for the secured card in your local First Financial Bank financial center.
2. Open a First Financial Bank Secured Savings Account and make a deposit equal to the credit limit request.
3. Use the card responsibly to make purchases.
4. Make payments on time and keep a low balance to help establish or rebuild credit.

And importantly, a secured credit card can serve as a comfortable entry into credit responsibility, with the goal of eventually graduating to a traditional, unsecured credit card. 

Credit scores 201: Why they matter and how to build yours

For most anyone who is not walking around with a million dollars in their pocket, a good credit score is essential for acquiring key necessities including a car, apartment, or smart phone. It also makes borrowing for such necessities more affordable, because interest rates tend to go down when credit scores are high.

Further, a good credit score can make you eligible for more appealing borrowing options from lenders, such as lower interest rates on credit cards, lines of credit, and secured loans. 

Most lenders rank credit (FICO) scores in the following ranges:

• 300-579: very poor
• 580-659: poor
• 660-699: fair
• 700-739: good
• 740-799: very good
• 800-850: excellent

Three major credit bureaus – Equifax, Experian, and TransUnion – determine credit ratings based on several factors. These include: your payment history, the amounts you owe (and its ratio to your credit line), the length of your credit history, recent credit applications, and the types of credit you carry so it’s important to make decisions that positively impact your credit score.¹

Why secured credit cards make sense for starters

Outside of helping to build good credit, the benefits of a secured credit card include: 

• Accessibility: You can qualify for a secured credit card more easily than an unsecured credit card or even a student credit card, because your credit is limited to your security deposit, and this reduces the risk of default.
• Easier to manage: Because your secured card limit is predetermined and guaranteed by your deposit, you are better able to avoid unmanageable debt. For example, at First Financial Bank, the credit range for a Visa® Secured Credit Card is $300-$2,500, held in a secured savings account.
• Flexibility and security: Your secured credit card acts much like an unsecured card and could be managed online, through an app, and on a mobile wallet. With a Visa® Secured Credit Card from First Financial Bank, you also can enroll in e-statements and set account and security alerts.
• Upgrade opportunity: If you use your Visa Secured Credit Card® responsibly make timely, consecutive on-time payments for 12 months, and meet credit score requirements, you could become eligible for a standard, unsecured credit card and remove the hold on the funds used to secure your previous card.²

These benefits are designed for beginner borrowers and for those looking to rebuild their credit.

Best practices for holding on to good credit

It is still important to be cautious with your spending, even with a card like a secured card. The good news is you have control of these risks by being a student of responsible borrowing. We recommend these five best practices:

1. Manage what you charge: Make small purchases each month so you know you can pay as much as possible on time. Be aware: If you can’t pay the full balance, you will incur interest charges.
2. Don’t max out: One way to ensure a good credit score is to keep your credit ratio use – the share of credit you use – to 30% or less of the limit. So, if you have a $500 limit, you’d want to keep the amount you carry each month to less than $150. Paying the full balance each month helps manage this.
3. Pay attention to your credit score: You can sign up for free credit reports from one of the three credit bureaus (Equifax, Experian, or TransUnion) through AnnualCreditReport.com.
4. Use your card’s digital tools: If your secured card comes with features that enable you to set security and account alerts, use them daily. Doing so can protect you from bad actors trying to take advantage of your account. Also, know your own actions: Familiarize yourself with your balance, transactions, and payment history.
5. Pay attention to rates and fees: Secured credit cards – like unsecured cards – charge interest (annual percentage rates) and other fees, so read the small print. Look for cards that do not charge annual fees, to manage your costs. Typical APR on secured credit cards might be higher than an unsecured card, with some as high as nearly 30%.³

Raising your hand for a secured credit card? Come see us!

Whether you’re just starting out or rebuilding credit, if you are interested in getting one of our secured credit cards, visit one of our convenient banking centers to submit an application.