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How to Use a Secured Credit Card as a Stepping-Stone to Better Credit

By: Kirstin Wilson07.06.23

If you’re new to borrowing, your first step is to establish credit. Secured credit cards can be an alternative to unsecured credit cards with the same conveniences. Secured credit cards are designed to help borrowers take positive steps towards financial freedom. The best candidates for secured credit cards are high-risk borrowers, those with damaged or insufficient credit history, those who are just starting out with credit, and those looking to avoid overspending.

To open your secured card, you’ll need to put down a cash deposit to establish your credit limit, which may be equal to your deposit but typically ranges from $200 to $500. This cash deposit is used as collateral for the financial institution in the event the borrower fails to make timely payments towards their credit card balance. American Heritage’s Platinum Secured Mastercard® has a credit limit range of $300 to $25,000.

Though some financial institutions do not charge an annual fee for secured credit cards, you should expect to see a higher interest rate associated with their credit card. For institutions that do charge an annual fee, which are typically between $25-$49, their interest rates for secured cards will likely be lower. American Heritage has an annual fee of $35 and a competitively low interest rate.

Your security deposit is not the balance you have available to draw from like a debit card. Instead, this deposit is how you establish or open this line of credit. Since your charges aren’t deducted from your security deposit, so you will have to make monthly credit card payments to start building your credit. When you make on-time payments to your secured card, the lender will report that to the three major credit-rating agencies, Equifax, TransUnion, and Experian. Over time, your credit score will reflect your history of reliable payments, which can help you qualify for an unsecured credit card or other financing.


Pros & Cons of Secured Credit Cards




  • Secured Credit Cards are backed by a cash deposit, making their approvals easier than approvals for unsecured credit cards.
  • The cash deposit needed is usually refunded to good borrowers who pay their monthly balance in full and on time.
  • Secured credit cards can be used as a stepping-stone to unsecured credit cards and teach you how stick to a budget.
  • Secured credit card borrowers might face higher annual fees and interest rates compared to unsecured credit cards.
  • You will need cash up front to cover the deposit in order to open the line of credit.
  • Cash deposits may also mean lower credit limits and lower monthly spending to maintain a favorable credit utilization rate.


How to Graduate from a Secured to Unsecured Credit Card

Some credit card issuers may have a program in place that allows their secured credit card holders to graduate to an unsecured credit card when they reach a certain credit score, make a specified number of on-time payments, or require the borrower’s loan account be in good standing for a predetermined amount of months. In many cases, you will need to apply for a new, unsecured credit card on your own. This option allows you to select the best credit card for your spending habits and allows you choose which card features are important to you.

A good option for your new unsecured credit card would be one that has no annual fee, a low interest payment, and one that allows a slight increase to or maintaining of your current credit limit. Lower interest payments are helpful if you are a borrower that carries a balance month to month, though paying off the monthly balance in full is recommended. A gradual increase to or maintaining of your credit limit can lenders that you are a trusted borrower. Cash rewards credit cards are also an option for borrowers looking to earn cash back or points on their everyday spending – just be mindful of annual fees and higher interest rates.

American Heritage’s Platinum Preferred Mastercard® offers borrowers with a low interest rate, no annual fees, no balance transfer fees, and even offers ScoreCard Rewards Points that you can use towards merchandise, travel, or gift cards.


How to Stay on Track

Once you’ve graduated to your new unsecured credit card, it is important to stick to good habits:

  • Start with a low credit limit that is slightly higher than your secured card limit if possible. This keeps your budget roughly the same but continues to positively impact your credit score.
  • Staying below 30% credit utilization will help to contribute to better credit cores. If your credit card limit is $1,000 and your current balance is $250, you’re utilizing 25% of your available credit.
  • Avoid opening additional credit cards or loans or allowing hard pulls of your credit score for a few months after opening your new credit card. These can negatively impact your credit score and may contribute to a higher amount of debt in your financial portfolio if opening new loan accounts.
  • Maintain at least some activity on the card for an extended amount of time. Keeping a reliable credit card open for several years with consistent transactions and on-time payments is the key to building good credit.

Both secured and unsecured credit cards can be powerful tools to provide borrowers with convenience and the ability to build good credit and positive spending habits. American Heritage has low-interest and cash back credit card options available for borrowers looking to grow on their financial journey. Enjoy low rates, great rewards, and exciting member and card benefits by applying today.



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