Q&A Video: Will I Build Credit Faster With A Secured Credit Card?

John Ulzheimer

John Ulzheimer | Q&A Videos

Sep 28, 2015 | Updated Oct 05, 2015

Credit cards come in many different types – rewards, business, travel, gas, secured (which require a security deposit), and more. But do these cards affect your credit differently?

It turns out that the type of card won’t matter for your credit – however, the credit limit probably will, and these cards come with very different credit limits.

Learn more about these types of cards in our video with credit expert John Ulzheimer.

Transcript

Hi my name is John Ulzheimer and I am a credit expert who contributes to CreditCardInsider.com. If you have any questions for us please submit them in the comments section below. Today’s question is pretty lengthy so I’m going to have to read it. Here it is:

Is a secured credit card as good for my credit as a regular credit card?

Now I’m assuming a “regular credit card” is a credit card that is not a secured card where you did not have to put a deposit down with the bank in order to get them to issue a card in your name. And then it follows with:

Is there any difference in how beneficial it is for my credit score whether it is a store card, like a retail store card, a rewards card, a business card, or a gasoline card?

All very good questions. Generally speaking the type of card on a credit report is not terribly important. Yes it’s considered and it is seen as a different type of account, but a credit card is a credit card is a credit card and what’s more important about the card, there’s two things that are more important about it.

  1. Whether or not you’re making a payment on time, but that’s relevant to any type of account whether it’s a credit card or a mortgage loan or an auto loan.
  2. And second, this is where it really becomes important, is the limit on the card.

The credit limit on the card is very influential in your credit scores and both FICO scoring systems and VantageScore scoring system there is a metric called the debt-to-limit ratio or more formally referred to as revolving utilization that considers the balance on your cards relative to the limits on your cards. And the lower your balances are in relation to the limits the more points your going to earn for that particular category and it’s a very influential component of your score or so it’s not chicken feed that we’re talking about here.

These different types of cards that we just talked about are generally going to have very different credit limits. The credit limit on a retail store card, when you open it, might be less than a thousand bucks.

The credit limit on a secured card, when you open it, might be only a few hundred dollars because you have to actually put a deposit down that’s going to be equal to whatever credit limit they’re going to give you and most people aren’t going to give five or ten grand to a bank just so that they open a card in your name with that credit limit. Normally you’re going to open it with just a few hundred dollars, so again, very low credit limit.

Gasoline credit cards almost always have very low credit limits. Business cards: in most cases business cards don’t even show up on your personal credit report unless you miss payments, and so we probably should take them out of the equation altogether.

Now we get to what was referred to in the question as a “regular credit card” which I’m assuming is an unsecured card like your Visas, your MasterCards, your Discovers, and your Amexes. Those are the cards that are generally going to have really high credit limits and they’re generally going to have really high credit limits if they’re being issued by a mega bank, like you’re B of A’s and your Citis and your Wells Fargos and your Chases. Those are the types of banks that are going to generally give really high credit limits.

Those types of credit cards are also available through credit unions. The problem is that credit unions are generally not going to give you those really really high limits. It’s not uncommon to get a credit limit from a mega bank that’s 15, 20, 30-grand. It is more uncommon to get that type of credit limit from a credit union. It does happen from time to time, but you’re probably gonna see things more like $2500, 5 grand, $7500, 10 grand and that’s kind of a high-end of it.

So where this is important is even though you may be using the card consistently month-over-month, the limit on that card you actually be chewing up more of that limit on the card that’s got a lower limit, which is going to be detrimental to your credit score, however the same spending done on a card that’s got a really high limit might be much less problematic or in some cases it could be completely immaterial and may not have any negative influence on your score at all.

So keep that in mind if you have a choice between a card issued by a mega bank that’s going to have a really high credit limit, versus a card issued by, for example, a regional bank or credit union, they’re perfectly fine, don’t get me wrong I’m not bashing them, but if they’re going to issue you a credit limit that’s very very low, you need to at least acknowledge or consider how that’s going to be detrimental to your credit score. Especially if you’re going to be using that card and you’re going to charge on it considerably, I would always choose the card that’s going to give you the higher limit because it’s going to be much less problematic for your credit scores.

So if you have any other questions pertaining to credit or financial topics, then please submit them to CreditCardInsider.com or in the comments section below. Thank you for watching and have a nice day.

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