Secured Credit Cards
What Are They?
A secured credit card is a credit card that has been secured with a cash deposit. Most card issuers will give applicants a credit limit that is equal to the cash deposit. E.g if an applicant puts down a cash deposit of $500 they’ll be given a credit limit of $500.
In some cases the credit limit will be higher than the cash deposit, this is called a partially secured credit card. The availability of these partially secured credit cards has always been low.
How Do They Work?
Secured cards work the same as regular credit cards, when a purchase is made the amount of available credit is reduced. When this money is repaid the amount of credit available increases. For example, if the credit limit is $500 and the card holder makes a purchase for $100 they now have $400 in available credit. If they pay $100 back the amount available increases to $500 again.
Secured card holders are required to make minimum monthly payments and can be faced with late fees if these aren’t paid on time. The only difference between a secured and unsecured credit card is that secured credit cards require a security deposit.
Why Are They Popular?
Secured cards are popular because they require little to no credit history, which makes them an ideal first card for consumers. These cards are also available to those who have bad/terrible credit and are often used by these consumers to prove to creditors that they can now manage their credit efficiently.
What To Look For?
Before applying for one of these cards it’s extremely important to do research. Due to the target market being unable to be approved for a regular credit card, applicants often think they have very little choice and have to accept exorbitant fees and other unfair terms. In reality there are 20+ secured credit cards currently on the market – all of which are available to consumers with no or bad credit history. Here are some key features that applicants should look out for:
- No application fee. Card issuers should not charge an application fee for a secured credit card.
- Low to no annual fee. Consumers should look for cards which have a low or no annual fee. Not only is paying a lot of money for an annual fee a waste, it also means when it’s time to upgrade to an unsecured card consumers will cancel their secured card to avoid the fee. This’ll cause card holders average age of accounts and oldest account to drop off their credit report after seven years.
- Report to the three credit bureaus. The main purpose of these cards is to improve or create credit history, this is not possible if the card issuer doesn’t report to Equifax, TransUnion & Experian.
- Ability to add funds to increase the credit limit. Applicants should know which cards allow them to add funds to their security deposit and which don’t. Credit limits on future cards are often based on the credit limit of the the applicants current cards. This means having a secured card with a high limit will lead to future high credit limits.
- Graduation to an unsecured card. The end goal of having a secured credit card is to improve ones credit to the stage where they’ll be approved for a an unsecured card. Some card issuers make this easier and will automatically upgrade card holders to an unsecured product after twelve months (thus releasing the security deposit), whilst other issuers never unsecured their secured products.
Below are our five favorite secured cards, along with links to our in depth reviews for each card. If you’d like to look at over 21+ cards, we suggest reading our best secured credit card article.
Why we love this card:
It has no annual fee or application fee. It reports to all of the major credit bureaus, graduates to an unsecured card and you can add funds to increase your credit limit. It also comes with 1% cash back on all purchases (and 2% for gas & groceries with a $1,000 quarterly limit). Oh and as a sign up bonus it offers double cash back for the first year. Pretty much the rolls royce of secured cards.
It has no annual fee, no application fee, it’s available to everybody and reports to the three major credit bureaus. It also has a rewards program which allows consumers with bad/no credit to earn “Chrome cash” which can be used to purchase Harley-Davidson products. It graduates to an unsecured card and it’s possible to add funds to increase the credit limit. Card holders also earn interest on their security deposit. It’s backed by US bank and Visa, meaning it’s accepted anywhere Visa is accepted.
The best feature of this card is that you can add BoA’s cash rewards program to it, which is 1% cash back on all purchases, 2% for grocery stores and 3% at gas stations. It’s annual fee of $39 is more than reasonable, especially for those making big purchases. It reports to all three credit bureaus and BoA graduates most card holders to an unsecured card after 12 months. It’s also a Visa card, so it’s accepted almost anywhere.
[Read: Visa Secured Credit Cards]
It has no annual fee, no application fee and is a Visa card so it’s accepted almost everywhere. It also reports to Equifax, TransUnion & Experian. The only downside to this card is that you must be a member of DCU to be eligible and this’ll cost you at least $15 per year in donations to charities.
It has no annual fee, no application fee and is also a Visa card. It also has a great rewards program which is worth 1¢ per $1 spent in prepaid visa gift cards when you redeem 7,500 points or more. As always, it reports to the three major credit bureaus. The only reason it’s not #1 is that it’s only available to active or ex military members.
It’s also worth considering using the shopping cart trick/shopping-cart-trick-get-credit-cards-without-the-hard-pull/ if you have bad credit, as no hard pull is done they will approve almost anybody.