While many people are focused on finding the best rewards credit card possible, the reality is a large number of consumers who have bad credit are simply hoping to find any type of credit card that will help them get back on their financial feet. This can be challenging to say the least. However, there is one type of credit card which people with poor credit have a good chance of being approved for – a secured credit card.
Secured credit cards look and work almost exactly like a regular credit card. The main difference is that applicants must submit a security deposit with their application. In most cases, the security deposit is held by the card issuer for as long as your account remains open. If you ever default on your credit card account, the issuer uses the funds from your deposit to offset whatever amount you owe. If you choose to close your account, your deposit is returned to you in full as long as your account is in good standing and has a zero balance. Generally, security deposits do not earn interest.
Secured credit cards have a distinct advantage over prepaid cards in that your payment history is reported each month to the three main credit bureaus – Experian, TransUnion, and Equifax. This will improve your credit score over time – if you make consistent, timely payments. Creditors want to see that you can manage your finances responsibly and late payments can undo all the positive steps you are trying to make.
After much research and conversation, we have come up with what we consider to be the best secured credit cards on the market.
1) Capital One Secured MasterCard
The Capital One Secured MasterCard differs from most other secured cards by offering applicants a credit line larger than the cardholder’s security deposit. Plus, this card comes with no annual fee or foreign transaction fees. Here are the highlights:
- Required Security Deposit – $49, $99 or $200 refundable deposit based on your creditworthiness at the time of approval.
- Initial Credit Line – $200 to $3000. The minimum required security deposit gives you an initial credit line of $200. Deposit more than the minimum required amount before your account opens to get a higher initial credit line.
- Variable APR of 24.99% – On purchases and balance transfers.
- MasterCard – Accepted worldwide wherever the MasterCard logo is displayed.
- Credit Tracker – Free unlimited access to your credit score and other financial tools with Capital One Credit Tracker.
- Reports to Credit Bureaus – Your payment history is reported each month to the three major credit bureaus.
- Fraud Coverage – You have $0 liability if your card is ever lost or stolen.
- 24/7 Customer Service – Available online, via mobile device or by phone.
- No Foreign Transaction Fees
- No Annual Fee
The Wells Fargo Secured Visa sets itself apart by offering a maximum credit line of $10,000. This is nearly double the amount of most secured cards and greatly benefits those people who needs a larger credit limit to meet their needs. This card also offers the possibility of an upgrade to an unsecured card. Here are some important features:
- Credit Limit – Range from a minimum of $300 to a maximum of $10,000. Whatever amount you provide as a security deposit during the application process is equal to your credit limit.
- Security Deposit – Must be available for deposit in order to be approved for the card. Also, security deposit funds earn no interest and cannot be used to make monthly payments. Cardholders have no access to these funds.
- Reports to Credit Bureaus – Your payment history is reported each month to the three major credit bureaus.
- Possibility of Upgrade to an Unsecured Card – Wells Fargo periodically reviews secured accounts and upgrades qualified accounts. Card upgrade is not guaranteed. If and when your card is upgraded, your security deposit is returned to you in full.
- Variable APR of 19.24% – On purchases and balance transfers.
- Annual Fee of $25
3) USAA Secured American Express
The USAA Secured American Express stands out from other secured cards by allowing cardholders to earn interest on their security deposit (it is put into a 2-year Certificate of Deposit). An important note: This card is expressly for USAA members. You must be a current member of the military, a veteran with an Honorable Discharge or an eligible family member to qualify. Here are more details:
- Security Deposit – When you apply for the card, you will also open a USAA Bank 2-year Certificate of Deposit (CD). The minimum deposit is $250 and the maximum is $5,000. Your CD earns interest (currently 0.54% APY but can change throughout the 2-year term) and is yours to keep as long as you don’t default on your payments.
- Credit Limit – Your credit limit is equal to whatever amount you initially deposit as a CD.
- Reports to Credit Bureaus – Your payment history is reported each month to the three major credit bureaus.
- Variable APR of 9.90% and 19.90% – On purchases, cash advances and transfers. Your specific APR is based on your creditworthiness at the time of approval.
- Annual Fee of $35
4) First Choice Bank Secured Visa
The First Choice Bank Secured Visa card offers account holders a fixed 9.99% APR on purchases. This is one of the lowest APRs available for a secured credit card making it a good choice for anyone who may occasionally keep a balance on their account. However, this card charges a lot of fees so you should take that into consideration. Here are the highlights:
- Security Deposit – You must deposit a minimum of $200 (up to a maximum of $5,000 in $50 increments) in order to open an account. You are also required to open an FDIC Insured Saving Deposit with First Choice Bank to obtain this account.
- Credit Limit – Your credit limit is equal to whatever amount you provide as a security deposit.
- Fixed APR of 9.99%
- Reports to Credit Bureaus – Your payment history is reported monthly to the three major credit bureaus.
- No penalty rate
- Annual fee of $49
Many people who have poor credit or no credit history at all mistakenly think that having any credit card is a bad idea – but really the opposite is true. Obtaining a secured card (while making consistent, on-time payments) is an excellent way to rebuild credit while enjoying many of the benefits of standard credit cards (such as reserving a hotel room or renting a car). The key is choosing the right one.