A key factor in your credit score is something called revolving utilization. Each of your credit cards is scored one at a time and then again collectively.
Every credit card account has a credit limit, the most you can charge with the card — and a current balance, the amount you owe on a card.
To determine your utilization, divide your secured card's current balance by its credit limit. Then multiply that number by 100.
Let's look at an example. Let's say you have a $300 credit limit and you have a current balance of $15.
Divide 15 (your current balance) by 300 (your credit limit) and you get 0.05. Multiply 0.05 by 100 and you get 5 percent. You're using 5 percent of your credit limit. Your revolving utilization is a healthy 5 percent.
Thirty percent of your FICO score is based on revolving utilization. The lower your revolving debt utilization, the more points you'll get on your credit score and that's why charging no more than 10 percent of your credit limit in any month is such an important guideline, especially when you're looking to boost your credit as quickly as you can. In contrast, making a large purchase on a card with a low credit limit will actually hurt your credit. Let's say you charge $275 on a secured card with $300 credit limit. Charging so close to your credit limit will deduct points from your credit score, and that's even if you pay your balance in full that month.
Since using a secured card is all about building credit, you'll want to keep those purchase amounts as low as possible.
After six months to a year of responsible use with a secured card, your credit score will improve enough that you may be eligible for better card offers, including unsecured cards that don't require a deposit.
Your secured card issuer may offer you an unsecured card, and if it doesn't be sure to ask for one. And don't be afraid to shop around. There are deals are out there, and you and your improved credit deserve a good one.
Every credit card account has a credit limit, the most you can charge with the card — and a current balance, the amount you owe on a card.
To determine your utilization, divide your secured card's current balance by its credit limit. Then multiply that number by 100.
Let's look at an example. Let's say you have a $300 credit limit and you have a current balance of $15.
Divide 15 (your current balance) by 300 (your credit limit) and you get 0.05. Multiply 0.05 by 100 and you get 5 percent. You're using 5 percent of your credit limit. Your revolving utilization is a healthy 5 percent.
Thirty percent of your FICO score is based on revolving utilization. The lower your revolving debt utilization, the more points you'll get on your credit score and that's why charging no more than 10 percent of your credit limit in any month is such an important guideline, especially when you're looking to boost your credit as quickly as you can. In contrast, making a large purchase on a card with a low credit limit will actually hurt your credit. Let's say you charge $275 on a secured card with $300 credit limit. Charging so close to your credit limit will deduct points from your credit score, and that's even if you pay your balance in full that month.
Since using a secured card is all about building credit, you'll want to keep those purchase amounts as low as possible.
After six months to a year of responsible use with a secured card, your credit score will improve enough that you may be eligible for better card offers, including unsecured cards that don't require a deposit.
Your secured card issuer may offer you an unsecured card, and if it doesn't be sure to ask for one. And don't be afraid to shop around. There are deals are out there, and you and your improved credit deserve a good one.
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