Build Credit Safely: Secured vs. Unsecured Cards

The short version

A secured card is backed by a refundable cash deposit that usually sets your limit. An unsecured card has no deposit. Both can build credit, but only if the issuer reports your payments to the credit bureaus, the three nationwide credit reporting companies, and you pay on time.

The card itself is not the magic. The habit is. Use it lightly, pay on time, and pay in full each month. That is what builds a credit history you can use later for a car, a lease, or a lower rate.

Both build credit if it reports and you pay on time

With either card, the deposit is the only difference. What builds your credit is on-time payments that the issuer reports to the bureaus. Pick the one you can get approved for, then use it right.

Secured card

Backed by a refundable cash deposit that usually sets your limit.

• A refundable deposit, often $50 to $300, usually sets your limit.
• Many have a graduation path to a regular card.

Unsecured card

A standard card with no deposit required.

• No deposit required.
• Approval rests on your application and history, harder with little credit.

Either one builds credit only if the issuer reports to the credit bureaus. A debit card does not.

Source: CFPB · figures illustrative

Do this now

1. Before you apply, ask whether the card reports to all three credit bureaus. No reporting means no credit history built.
2. Set autopay so every payment lands on time. On-time payment is the number one factor in your score.
3. Keep your balance under 30 percent of the limit. Utilization is how much of your limit you use.
4. Pay in full each month. You do not need to carry a balance to build credit.

What is a secured card, and what is unsecured?

A secured card is backed by a cash deposit you put down. The issuer holds your deposit, often in the $50 to $300 range, and gives you a credit line that usually matches it. You use it like a normal card and pay the bill each month. Many secured cards include a graduation path to a regular card after a pattern of on-time payments. An unsecured card has no deposit. The issuer extends credit based on your application and your credit history, so approval can be harder if you have little or no credit yet.

Which one actually builds credit?

Both can, as long as the issuer reports your payments to the credit bureaus, the three nationwide credit reporting companies. That reporting is what shows up on your credit report and feeds your score. So before you apply, ask whether the card reports. A debit card is different. It pulls from money you already have, so it is not borrowing and does not build credit history the way a reported credit account does.

Where does VetraFi fit in?

VetraFi is a veteran-led financial technology company building the Shield Card, a secured card designed to help service members build credit. It is pre-launch, so you can join the waitlist at VetraFi.com. As with any card, compare the terms and confirm reporting before you apply.

Here is how to use any card to build credit safely, and what to check before you apply.

Use it light, pay it off

A card builds credit only when you use it the right way. Keep your balance low, pay on time, and pay in full. Then compare the terms before you sign up so the card actually works for you.

Build it safely

• Pay on time, every month. The number one factor in your score
• Keep your balance under 30 percent of the limit. Utilization is how much of your limit you use
• Pay in full, you do not need to carry a balance.
• Apply only for credit you need.

Before you apply, compare

• The deposit and any annual fee.
• The APR if you might carry a balance.
• Whether there is a grace period.
• Whether it reports to all three bureaus.

A card that does not report to the bureaus does not build credit history.

Source: CFPB · figures illustrative

Get help, free

You do not have to sort this out alone. Every active-duty, Guard, and reserve member, and their family, can get free, confidential financial counseling. Military OneSource and your installation Personal Financial Manager or Personal Financial Counselor can walk you through choosing a card and a payoff plan. The DoD Office of Financial Readiness has free tools and lessons, and the CFPB has plain-language guides on credit. All four are linked in Sources below.

FAQ

Is my secured-card deposit gone for good?

No. The deposit is generally refundable when you close the account in good standing or move to an unsecured card.

Does a secured card build credit faster than an unsecured one?

Neither is automatically faster. What matters most is paying on time and that the issuer reports to the bureaus.

Does a debit card build credit?

Generally no, because it is not a credit account. Reporting can vary by provider, so confirm with yours.

Sources & links

• CFPB, Building credit from scratch (credit-invisible checklist): files.consumerfinance.gov
• CFPB, How do I get and keep a good credit score?: consumerfinance.gov
• CFPB, When does a credit card company decide what interest rate to offer me?: consumerfinance.gov
• CFPB, What is a grace period for a credit card?: consumerfinance.gov
• Military OneSource: militaryonesource.mil
• DoD Office of Financial Readiness (FINRED): finred.usalearning.gov
• VetraFi, Shield Card waitlist: vetrafi.com