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Having no credit history — or a credit score that needs work — is more common than you think. And while building credit can feel like a frustrating uphill climb, the process is actually much more doable today, especially with good financial habits. Those who set their mind to it can achieve it.
In the past, the path to better credit was all work and no reward. The people at Navy Federal Credit Union, however, decided there should be a better way.
“Many of our members working to build or repair credit told us they wanted something that wasn’t just functional, but empowering,” said Rick Conyers, assistant vice president of credit card products at Navy Federal Credit Union.
The solution was a credit-building credit card — one that offers rewards while users build their credit. Here’s how people looking to repair or build their credit can use it to help reach their financial goals.
Research secured credit card options
Secured credit cards are specifically for people with limited credit history or low credit scores. “Secured” means you make a refundable deposit when you open the account, like a security deposit for an apartment. That deposit lowers the risk for the lender and gives people a chance to build credit responsibly.
When comparing secured credit cards, review the following factors:
Size of the required depositAPR, or the amount of interest you’ll pay on purchases or balance transfersFees, including annual fees, cash advance fees, and foreign transaction feesLength of time before an account review for credit line increases or upgrade to an unsecured cardBenefits offered by unsecured credit cards from the same institution
Look closely at secured credit cards with rewards
Traditionally, rewards have been reserved for unsecured cardholders. However, lenders like Navy Federal recognize that people working to build or repair their credit deserve rewards, too — especially cash rewards.
While some cards have complicated point systems that vary by each type of purchase, cash back can be a great option for credit builders. Navy Federal’s cashRewards Secured card offers a straightforward unlimited 1% cash back on all purchases.1 “Cash back is simple, flexible, and easy to understand,” Conyers said. “You’re earning consistently on every purchase without having to navigate point systems or track spending categories.”
Apply for a secured credit card with rewards
When you’ve found the best card for you, get ready to apply. Here’s what you’ll need:
Money for your depositPersonal info, like your name, date of birth, address, etc.Your Social Security numberIncome info and housing costs
You can typically apply for a secured credit card online in just a few minutes. Navy Federal members, for example, can apply for a cashRewards Secured card on their website.
Keep your balance below one-third of its credit limit
Once you’re approved, use your card — and use it responsibly. You’ll have a set credit limit, which is the most you’re allowed to charge on your card. Keeping your balance below one-third of your credit limit on your billing cycle’s close date helps your “credit utilization ratio.” This is a factor that credit scoring models use to set your credit score.
Always pay on time
Each month, credit card users have a minimum amount due and a payment due date. Paying on time is critical to building credit. Even better? Pay your entire balance in full each month, not just the minimum amount due, and you’ll be on the road to better credit.
Know when your account will be reviewed for upgrades
A secured credit card is meant to be a stepping stone. Periodically, the credit card issuer might review your account to see if you’re ready for the next step. Navy Federal reviews cashRewards Secured cardholders’ accounts after just three months for a potential credit limit increase, without any additional deposit required.2 After six months, they review accounts for potential upgrades to an unsecured card.
Graduate to an unsecured card with bigger rewards
After using your secured card responsibly for long enough, your next congratulations will be in order: Your credit card issuer may let you know when you’re eligible to upgrade to an unsecured card. If you choose a secured card from a company with a whole suite of rewards credit cards, this could be a seamless transition, and you’ll get your deposit back.
For example, Navy Federal allows eligible cashRewards Secured cardholders to level up to their cashRewards card, which offers unlimited 1.5% cash back.3
With responsible use, a secured credit card with rewards can be the first step to great credit. That’s why Navy Federal recently launched theirs. “It’s part of our long-term approach to helping members at every stage of their financial journey,” Conyers said. “From first card to credit savvy.”
See if Navy Federal’s cashRewards Secured card is right for you.
This post was created by Insider Studios with Navy Federal Credit Union.
1 cashRewards Secured credit cards earn 1% cash back for every $1 of eligible purchases. Eligible purchases are purchases for goods and services, minus returns and other credits. Eligible purchases do not include fees, interest charges, balance transfers, gambling, convenience checks, cash advances, or other cash-equivalents (e.g., money orders, gift cards, prepaid cards). For more information, view the cashRewards Secured Program Description.
2 https://www.navyfederal.org/loans-cards/credit-cards/cash-rewards-secured.html
3 cashRewards credit cards earn 1.5% cash back on every $1 of eligible purchases. Eligible purchases are purchases for goods and services, minus returns and other credits. Eligible purchases do not include fees, interest charges, balance transfers, gambling, convenience checks, cash advances, or other cash-equivalents (e.g., money orders, gift cards, prepaid cards).
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