The best way to build good credit is to use credit responsibly, but how do you do that when nobody gives you credit because of your low score? Many millions of Americans face this question when trying to rebuild their financial lives. The system seems designed to make sure the people who need credit most can’t get it.
Rebuilding is a challenge, but it’s not impossible, and even if your score is downright bad, you can still get the tools you need to begin the process. One of the best ways to do this is with a secured card.
What Are They?
Most cards are unsecured, meaning that you don’t have to provide any collateral to get one and start using it. You can only get one of these if you have at least a fair credit score. Secured cards require the holders to make a cash security deposit, usually equal to or slightly more than the limit. Because the deposit protects the issuer from a possible default, these products are available to people with serious issues in their financial histories.
Issuing companies do sometimes reward responsible users with higher limits after a period, and these increases often don’t require any additional deposit. With regular, responsible use, you can build your credit profile and qualify for an unsecured product down the line. If you close your account or convert it to an unsecured card, the issuer will refund your security deposit, in some cases with interest. If you keep your balance below 30% of your credit limit and pay every bill on time, you’ll be on the road to a better score!
There are dozens of secured options out there. How can you choose the one that’s right for you? Let’s compare some of the most popular offerings. Look for the interest rate, annual fee, minimum deposit, and other features that suit your needs. Remember that a higher interest rate can balance out a low annual fee very quickly, though if you pay your bill on time every month, as you should if you are trying to improve your score, you won’t have to pay interest. All of the options listed here report to the three major bureaus, an important feature for rebuilding your score. You’ll have to put some effort into figuring out which is best for you, but with the right choice, you’ll have the convenience of plastic and a way to improve your financial profile.
You’ll find links to the application pages at the end of this article!
Discover it® Secured
Regular APR – 23.49%
Annual fee – $0
This popular option has no annual fee and gives you cash back on every purchase you make. You’ll get 2% at restaurants and gas stations on up to $1,000 worth of spending per quarter and 1% cash back on all purchases. If you handle your account responsibly, you’ll get an automatic review every seven months to see if you are eligible for an upgrade to an unsecured product. You’ll get a free FICO Score report with every monthly statement, a useful tool for tracking your progress. You will need a bank account and a security deposit of $200 or more.
Wells Fargo Secured Visa®
Regular APR – 19.49%
Annual fee – $25
You’ll get a very high potential credit limit (minimum $300, maximum $10,000), making it a good option for people with available cash. The $25 annual fee isn’t too bad, and after 12 months of timely payments, Wells Fargo will review your account to see if you qualify for an unsecured card.
Regular APR – 13.99%
Annual fee – $49
This option pays you interest on your security deposit, which needs to be a minimum of $200 up to a maximum of $5,000. That gives you some payback for the somewhat higher annual fee. You can apply even with a low score or no history, and approval is guaranteed if your income exceeds your expenses by at least $100.
Capital One® Secured MasterCard
Regular APR – 24.99%
Annual fee – $0
The Capital One Secured MasterCard will give you a limit greater than your security deposit, based on your creditworthiness. A security deposit of $49, $99, or $200 will get you an initial limit of $200. There’s no annual fee. If you make your first five monthly payments on time, you qualify for a higher limit with no additional deposit!
primor® Secured Visa Gold
Regular APR – 9.99%
Annual fee – $49
The primor Secured Visa Gold Card has a low APR of 9.99% and offers a limit equal to your deposit, anywhere from $200 to $5,000. Your deposit also accrues interest but does not compound. There’s no minimum score, making this an excellent choice for people with past issues in their financial histories. The annual fee is on the steep side, but if you often carry a balance, the low APR could make up for it. Just remember that carrying a balance is bad for your score.
U.S. Bank Secured Visa®
Regular APR – 19.49%
Annual fee – $29
With the U.S. Bank Secured Visa, your security deposit (minimum $300, maximum $5,000) goes into an FDIC-insured, interest-accruing U.S. Bank savings account. Following 12 timely payments, U.S. Bank will review your account to see if you are eligible for an upgraded, unsecured card. You can use this anywhere in the world, and it carries a range of fraud protection benefits, auto rental insurance, and online banking, making it a great choice for travellers.
Regular APR – 20.74%
Annual fee – $39
You can get a relatively high limit here ($300 – $4,900), and your security deposit might be returned to you after 12 months of timely payments if your score meets a required standard. You’ll have free access to your FICO Score, updated monthly.
USAA Secured Card® Platinum Visa®
Regular APR – 10.40%-20.40% (Variable)
Annual fee – $35
With the USAA Secured Card Platinum Visa, you can determine your limit – from $250 to $5,000. There are also no foreign transaction fees when you use it outside the United States. Your cash deposit also accrues interest. You can add to your deposit and request a limit increase, which will help your utilization ratio and build a better score faster. There’s a range of special benefits for serving members of the armed forces.
Merrick Bank Secured Visa®
Regular APR – 17.95%
Annual fee – $36 for the first year and then $3 a month after that Merrick Bank’s Secured Visa has generous approval standards and lets you choose your limit, from $200 to $3,000. Your cash deposit is also FDIC insured but does not accrue interest.
OpenSky® Secured Visa®
Regular APR – 17.89% (variable)
Annual fee – $35
You do not need to undergo a check to apply for this product, making it a great option for people with bad or absent histories. Your cash deposit can be anywhere from $200 to $3,000, and there’s a chance you’ll qualify for a limit increase of up to $5,000 at any time. The application process is quick and easy.
The Bottom Line
A secured card is a great tool for getting your score back on track, but you’ll have to use it wisely if you want to see results. You’ll want to pay that monthly bill on time, every time, and keep your monthly bill under 30% of your credit limit. If you can keep that bill to less than 10% of your limit, your score will rise even faster. Putting down a larger deposit and getting a higher limit make that easier to do, so consider a larger deposit if you have access to a bit of cash.
Using your secured card wisely is not just a way to build a better score; it’s also a way to build the good financial habits that will keep you out of trouble when you do get your hands on an unsecured card. Getting used to monitoring your use of your plastic, keeping your utilization ratio low, paying on time, and keeping track of your FICO Score is not just a way to get out of trouble, it’s a start toward a lasting commitment to better money management!