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Does an unsecured card build credit faster than a secured card? Does FICO rate them differently?

By , CardRatings contributor
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None of the credit scoring algorithms in use today, such as FICO, ScorePower, or VantageScore, can tell the difference between a secured credit card and an unsecured credit card. As far as those systems can tell, a credit card's a credit card. However, there may be a few instances where a secured credit card might not help you build credit as fast as you'd like:

  • You're using too much of your secured credit line. Thanks to a wave of competition among lenders, mainstream banks have started offering secured credit cards in greater numbers. However, secured credit cards can really only improve your credit score if you show an extremely low credit utilization. If you can keep your monthly balance at about 10 percent of your available credit, you're likely to see the best results. Should your balance creep above 30 percent, that card can start dragging down your score.
  • Your creditors list lacks diversity. Every scoring algorithm processes your credit report data a little differently. Recently, I've heard more reports that carrying two or three credit cards from the same lender can cause some algorithms to score you as if you held a single account with that bank. Try finding a credit card deal with a bank that's not already part of your credit history.
  • You missed some payments. Even though your bank holds a deposit as collateral against your secured credit card, you can still wreck your FICO score if you neglect to pay your minimum monthly balance. Delinquencies can dog your credit score for years, even if your bank only reports you 30 days late.

In addition, remember that factors other than credit score alone can impact a future lender's credit decision. Some instant approval credit card applications now use proprietary analysis tools that weigh the items on your credit report against the statistical behavior of a lender's other customers. Stay focused on building good credit instead of deepening your debt, and you'll start to qualify for stronger offers.

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