Best Card Summary
Capital One secured MasterCard®
Why it is one of the best secured credit cards: Secure MasterCard from Capital One is designed for people limited to bad credit who are ready to start building a positive credit history with responsible use. The card charges no annual fee and reports to all three major credit reporting bureaus. All you need to start is a security deposit of $ 49, $ 99 or $ 200. The initial credit line is $ 200, but you will automatically be considered for a higher credit line in six months. Security deposits are refundable with the use of the responsible card.
Citi® Secure MasterCard®
Why it is one of the best secured credit cards: If you do not have a credit history, you can consider Citi Secure MasterCard. This card requires a minimum deposit of $ 200 and if you are approved, you will have an initial $ 200 credit limit. You have the flexibility to choose your due date, and this card reports account activity to all three major credit bureaus. Also, you get free FICO credit score access without paying an annual fee.
BankAmericard® Secure Credit Card
Why it is one of the best secured credit cards: BankAmericard Secured Credit Card may be right for you if you need to establish or rebuild your credit history. Your credit limit is based on your security deposit, income, and ability to repay what you borrowed. You can get your FICO score monthly for free, and Bank of America periodically reviews accounts to determine if you have enough history to return your deposit. There is no annual fee for this card.
US Bank Secured Visa Card
Why it is one of the best secured credit cards: The US Bank Secured Visa Card can help you create or rebuild credit with a $ 55 annual fee. This card does not offer rewards, but it does come with free tools that can help improve your credit history, including TransUnion credit score access and automatic payments.
Do you have bad credit?
Your creditworthiness is defined by many factors, including your credit score and the content of your credit report. When you apply for credit, lenders use your credit score and credit report to determine your credit risk. In other words, they decide if you are likely to repay your loan.
There are a few different credit scoring models used by the financial industry, but FICO scores are by far the most used.
FICO scores range from 350 to 850. your FICO score Calculations are made based on data in your credit report collected by three major credit bureaus: Equifax, Experian and TransUnion. That data includes things like your outstanding debts, payment history, defaults, decisions and bankruptcy.
Here is a breakdown of the FICO score categories:
- Extraordinary (800+)
- Very good (740-799)
- Good (670-739)
- Fair (580-669)
- Bad (579 and below)
Bad / bad credit refers to a score of 579 and below. When you have a poor credit score, you have very little credit. It can be nearly impossible to get approved for traditional credit cards with bad credit.
The same is true if you are a new user with no credit history. What’s good is that the remedy for both these situations can be found with a secured credit card.
What are Secured Credit Cards?
A secured credit card can be a great way to establish or rebuild credit. But it is necessary to read fine print. Some of these cards come with annual fees and other costs.
There are unsecured credit cards for bad credit, but some of these cards have sky-high annual percentage rates and many fees. Because of this, the best secured credit cards are often a better option than some unsecured credit cards that target people with bad credit.
Secured credit cards operate in the same way as regular credit cards, except that they are secured with a cash deposit. If you default on the payment, the deposit is a security for the bank / lender. If you have a secured credit card and you do not make your payment, the credit card company may forfeit your deposit and you will not receive it back.
How do secured credit cards work?
To open a secured credit card, you deposit cash with the creditor. The creditor keeps your deposit in a secure account that you cannot access as long as the card is active. If you miss a payment, the lender withdraws from that account to pay the overdue balance.
It is easy to confuse secured credit cards with prepaid debit cards. They are completely different. With a prepaid card, you are withdrawing from a debit account every time you use it.
You are not buying goods on credit; You are purchasing items with cash from your debit account. You cannot create credit with a prepaid debit card. But with a secured credit card that reports to three major credit bureaus, you can build credit history and increase your score.
Using a secured credit card is the same as using an unsecured credit card. You have to pay the balance or at least the required minimum payment due date. If you miss a substantial monthly payment, the creditor will use your deposit to pay your balance. If this happens, the effect on your credit score is the same as if you default on an unsecured card.
Do whatever you have to do to make your payments on time. A secured credit card can help you rebuild your credit, but if you do not use the card responsibly, it can make your credit score worse than before.
Secured Credit Card Benefits:
- Approval is easy because these cards present less creditor risk.
- These cards offer a lower APR than most unsecured credit cards that target people with bad credit.
- Lower credit limits reduce the risk of overspeeding.
- Responsible use leads the way for an unsecured credit card to be approved with a higher credit limit and no deposit.
Drawbacks of secured credit cards:
- A cash deposit is required to secure the account.
- Interest rates are generally higher for secured cards than for unsecured credit cards.
- Fees can be hidden in fine print with some secured credit cards, so read it carefully.
How can you choose a secured credit card?
For secured credit cards, the most important features are:
- Annual Fee
- credit limit
- initial deposit
The annual fee and initial deposit are money that you will have to spend even if you do not use the card. And if you use the card, you will create a payment history.
There were very few secured credit cards that did not charge an annual fee. But now, some of the best secured credit cards have no annual fees. If there is an annual fee, it is charged directly from the balance in a larger amount or divided into monthly installments, the day you open the card.
Credit limits for secured deposit cards are usually much lower than for traditional cards, depending on your deposit. But once you have established a history of making timely payments, you can ask for a credit limit increase. Be aware that this often means increasing your security amount, so make sure you are comfortable with it if it is required by the issuer of your card.
Having a higher credit limit will certainly ease the lower credit utilization ratio, which is the amount of credit you use compared to the credit available to you. Your ratio should not exceed 30%. With a lower limit, you may have trouble keeping a lower ratio.
For example, with a limit of $ 200, you should not exceed $ 60 in purchases (200 x .30 = 60). With the $ 900 limit, your balance can go up to $ 270 (900 x .30 = 270) during the month before it negatively affects your score. Note: To increase your score even faster, keep your usage ratio below 10%.
Many secured cards will evaluate a cardholder’s payment history after five to 12 months, but this varies by issuer. Keep an eye on yourself when the issuer is not proactive about increasing your limit or upgrading you to an unsecured card.
Your security deposit must be paid before opening the card. The amount will vary depending on your credit history, but it is usually between $ 200 and $ 2,500. The amount you deposit is often equal to the credit limit of the card.
A deposit is an upfront expense that you will not get back until the account is closed or upgraded to an unsecured card. Therefore, make sure you choose a deposit that you can make for a year or more.
What should you consider when choosing a secured credit card?
You should apply for the best secured credit card that you think you can get approved for. There are a variety of free educational scores at your fingertips online.
They are not FICO scores, but you will know how bad your score is. On the bright side, you think it’s not as bad as you thought! Additional features to consider include:
additional fees. Best secured credit card There is not a very high fee. But if your score is not good for one of the best cards, don’t fret. If you do research and read fine print, you will get some secure cards which have limited fees.
But beware: Some lenders that actually target people with bad credit have higher-than-high fees, such as monthly maintenance and initial processing fees. Just read the fine print carefully. And then read it again for good measure.
Ability to upgrade to unsafe version. Some secured cards have a route to graduation.
But issuers vary widely when it comes to upgrading the cardholder. And some issuers do not have a graduated route. Just focus on getting the best secured card, and as your credit improves, you will get access to an unsecured credit card with another issuer.
APR and penalty APR (if it exists). Do not expect a low APR with a secured credit card. But you know what? APR does not matter.
This may sound like a bold statement, but here’s why: If you pay your bill in full and by the due date, you won’t pay any interest. If you know that you will keep a balance, then you are not ready for a credit card.
Credit Bureau Reporting. Best secured credit card report to all three major credit bureaus. But you should still confirm this by reading the fine print. If you can’t find it, call the issuer and ask.
When the issuer reports your payment history, your score starts to improve. Ok, it works if you pay on time, so don’t miss any payment.
Prequalification. Some secure card issuers allow you to go through the pre-processing process to avoid stricter inquiries, which may lower your score. But the issuer is also required by federal law to create a positive identity of what you say.
Just to avoid surprises, let’s say that when you apply for a secured card you may get a hard check. Your goal is to improve your credit and some of the points you lost are not worth worrying about at this point.
Awards Program. Some secured credit cards offer rewards when you use your secured card for purchases. This is a good fringe benefit, but focus on your goal, which is to rebuild or establish your credit history. Do not observe! Keep a budget and track your spending so that you don’t overdo it.