Are you planning to start your own business? Buy a new home for your family? Transition to a new company? Or purchase that new Corvette Stingray? Your credit score will likely be taken into account by the employer, real estate agent, or dealership. Higher always seems better and even though some entrepreneurs are fighting the credit score system, credit still matters in today’s economy.
“It is one of the most important numbers that will be associated with you during your lifetime,” says Forbes advisor Kristin Stroller.
Regardless of the score number you currently have, there are ways to improve it and one of those is by opening a secured credit card. Secured credit cards are credit cards that require a refundable security deposit. The best ones help you build credit quickly, while offering low annual percentage rates (APR) and great benefits. We outline the best secured credit cards, the best tips to improving your credit history, and how to achieve better financial health.
The Seven Best Secured Credit Cards
When it comes to choosing a secured credit card, you’ll want to consider three things: (1) your current credit history, (2) how much money you want to put down for a deposit, and (3) what benefits you’d like to have.
These are the seven best secured credit cards available today:
Capital One Secured Mastercard
Best for a low security deposit
For this card, you can put down a $49.99, $99, or $200 security deposit, making it one of the best cards for a low deposit. However, what makes this card worthwhile is the 2% cash back on purchases spent at gas stations and restaurants of up to $1,000 per quarter, as well as unlimited 1% cash back on all other purchases. There is no annual fee and the lender conducts automatic reviews to determine if you qualify for an upgrade and a return on your deposit. The only con is the 24.99% APR and 10.99% APR on balance transfers for the first six months.
Discover It Secured Credit Card
Best for cash rewards
This secured credit card goes beyond just building credit. Discover offers 1-2% in cash back options, with no annual, monthly, or processing fees. You get 2% cash back on the first $1,000 spent at restaurants and gas stations per quarter. After the first year of having the card, you get double the cash back rewards, making this the best option for long-term benefits.
Citi Secured Credit Card
Best for building credit quickly
This isn’t the most glamorous credit card, but with a $200 minimum deposit, you can start to build credit. Citi reports monthly to the three major credit bureaus and offers an online management system that you can access 24/7 from any device. No annual fee is required. The card comes with a 24.49% variable APR and you only have to pay 3% APR on balance transfers. If you don’t pay off your minimum balance, you will get penalized.
OpenSky Secured Visa Credit Card
Best for individuals with bad or no credit
This card doesn’t require a credit check, which means that anyone can use it to build credit. There is a one-time account fee, a $35 annual fee and there are no cashback perks, but the regular APR is much lower than other secured credit cards, making this a worthwhile option. Your credit limit is based on your deposit which can be a minimum of $200 and a maximum of $3,000. Often, the higher your credit limit, the easier it is to build credit, but only if you pay off your balance every month.
Wells Fargo Secured Credit Card
Best for Wells Fargo customers
You need a Wells Fargo checking or savings account to apply for their secured credit card. A $300 minimum deposit is required and there is a $25 annual fee. The APR on purchases and balance transfers is 20.99%. One of the biggest draws to this credit card is the Visa benefits. You get roadside dispatch, travel and emergency assistance services, and up to $600 in cell phone protection if you pay your phone bill with your Wells Fargo credit card.
Bank of America BankAmericard® Secured Credit Card
Best for Bank of America customers
When you have an account with a bank, you are more likely to get approved for one of their credit cards. They already have access to your basic information, as well as your banking habits and this makes you a more reliable borrower. With this secured credit card, you have to put down a $300 minimum deposit, but can put down a maximum of $4,900. You don’t have to pay an annual fee. It comes with a 24.99% APR and 3% on balance transfers. Some of the perks include overdraft protection, mobile banking, and access to the FICO® Score Program which provides customers with beneficial financial information and free access to FICO scores.
American Express Secured Credit Cards
Best for rewards and those with decent credit
American Express is known for their reward benefits. From travel points to roadside assistance, this credit card company is great for travelers and business executives. Even though most of their credit cards come with an annual fee and not all merchants accept AmEx cards, the benefits more than make up for that. If you’re wondering what the perks of a good credit score are, check out the American Express reward list.
How Do Secured Credit Cards Work?
One misconception is that secured credit cards make it easier to pay off debts. This is not the case. Balance transfer credit cards are meant specifically for debt consolidation. If you have high credit card debts, you’ll want to consider transferring the balances to low interest credit cards. Secured credit cards serve a different purpose.
They aren’t prepaid cards and they aren’t debit cards. With secured credit cards, you not only get access to a credit limit, you get the opportunity to increase your credit score. If your application for an unsecured credit card was denied or if you are looking for ways to improve your credit history, consider a secured credit card. As mentioned above, some issuers don’t view your credit score before approving your application, making it easy for those with bad credit to get access.
This is how obtaining a secured credit card happens and here’s what you can expect:
- You will fill out an application. Depending on the issuer, you will include your personal information, your proof of income, and give them access to your social security number so the issuer can pull a credit history. If you are a member of a specific bank, you can ask about their secured credit cards. This gives you a higher chance of approval because the issuer already knows your banking habits. However, not all credit card companies need to know your credit score to approve your application.
- You will put down a deposit. This is your collateral, reassuring the issuer that you will pay off your balances each month. Your refundable security deposit will often be used to set your credit limit. If you put down $500, you will likely get a $500 credit limit, but this isn’t always the case. Compare issuers and if you aren’t sure what limit to expect, call a customer service representative and ask.
- You will use the secured credit card as you would any other credit card. Use the credit card for expenses. Pay it off every month. Eventually, your issuer may increase your credit limit, or will notify you of your eligibility for an unsecured credit card. Whether they do or not, keep track of your own credit score and when you feel you qualify for an unsecured credit card, start shopping for the best ones.
- You will upgrade or get access to an unsecured credit card. When you are ready for an unsecured credit card—and get approved—you can cancel your secured credit card. If you’ve paid off your full balance, the issuer will return your full security deposit.
How to Choose the Right Card
A secured credit card is a real credit card that allows you to build credit. Lenders will report your account activity to the three major credit bureaus (Experian, Equifax, TransUnion), which is why it’s so important to apply for the right secured credit card.
Here are things to consider when applying for a credit card:
- What is your current credit history? You don’t have unlimited access to your credit history. However, you can request a soft inquiry which won’t impact your score and will allow you to check your score. If your score is below 580, you should consider applying for a credit card that doesn’t require a credit score.
- How much money do you have for a safety deposit? Maybe you just secured a job and you don’t have enough money for a safety deposit yet. Maybe you have a lot of money, but not a lot of credit. The minimum deposit amount varies by credit card. Choose one that makes the most financial sense for you.
- What are your financial goals? This is important. Are you looking to buy a house, get married, grow your side hustle, buy a boat, or travel more? Improve your overall financial health by establishing long-term goals. Long-term plans require short-term actions, like opening a secured credit card so you can eventually open an unsecured credit card.
When it comes to applying for, securing, and closing a secured credit card, you need to avoid making the following mistakes:
- Putting down a higher safety deposit than you can afford. Ideally, you want a high credit limit, but if you only have $1,000, you shouldn’t put all $1,000 down.
- Carrying a high balance. If you carry a high balance for a long time, this will make it significantly harder to improve your credit score. This is why we recommend keeping your balance low and only using your credit card for small expenses.
- Forgetting to pay. This is inexcusable and even if it happens just once, that could be the same month that your issuer reports your history to the bureaus. Set up payment alerts or automatic approvals so you don’t make this mistake.
- Closing your credit card too soon. Closing any credit card can impact your credit history so make sure when you open a credit card, you are confident that you will keep it open for the immediate future.
With any credit card, you want to make sure you’re tracking your balance. Thanks to modern technology, it’s easy to set up automatic payments. However, that can also make it difficult to remember what has been paid and what has not. Charging your yearly Amazon Prime or your Squarespace payment to your credit card isn’t a bad idea, but it can be problematic if you aren’t checking your credit card account and forget to pay off the balance. This is why continuous monitoring is so important.
How to Get Approved
Opening a secured credit card makes it easy to rebuild credit and recover from any credit mishaps, but how long do you have to use a secured credit card before you can qualify for an unsecured credit card? Unsecured credit cards do not require deposits to open and some are great alternatives to unsecured credit cards. The major difference is that your credit score will impact your approval and if you do get approved it will impact your credit line and APR.
These are some of the best unsecured credit cards for those with bad or no credit:
Credit One Bank Platinum Visa for Rebuilding Credit
Best for emergency funds
The name explains it best: this credit card makes it easy to rebuild your credit without a security deposit. The annual fee is anywhere from $0 to $99, which is higher than most, but if you have bad credit and want an unsecured credit card or an emergency loan, this is a good option. Your APR will vary depending on your creditworthiness.
CapitalOne Platinum Credit Card
Best for those with no credit
If you don’t have a credit history of any kind, you might consider this unsecured credit card. There is no annual fee and your credit limit increases after the first five on-time monthly payments are made. Best of all, you can pay your balance by check, online, or with cash at a CapitalOne branch. The bank also offers online 24/7 access. The only negative is the 26.96% APR and the 3% cash advance fee.
Want access to a higher credit limit and more rewards like flight points, roadside benefits, and cash back? Increase that credit score. In addition to using a secured credit card, make sure you pay off debts, pay all bills on time, and use credit score-boosting programs, if necessary.
(Photo by Iegor Liashenko on stock.adobe.com)Utilizing Your Card
If you open a credit card of any kind, you want to carry a low balance or none at all. If you buy a $1,000 computer, for instance, you should be able to pay off the majority of it. If, instead, you pay it off in a six month period you could end up spending significantly more in interest, especially if you only pay $50 each month. You will get charged interest on each balance ($950, $900, $850).
To avoid this and make the most use of your secured credit card, here’s what you should do:
- Start paying for your most basic expenses using your secured credit card. Groceries and gas are good purchases because they should already be a part of your weekly budget. Ideally, you’ll only want to spend as much as you can afford to pay off each month.
- Make monthly payments on time. Most credit card issuers offer online systems and automatic payment options, making it easy to pay your bill. If you miss a payment or can’t pay off the minimum balance, you could end up paying for extra fees. Missing payments can also impact your credit score so don’t miss your payments.
- Pay more than your minimum balance. You never want to carry a balance that’s high, especially if you have a low credit limit. If you owe a minimum of $25 but your total balance is $380, you’ll want to pay that total balance, if possible. If you can’t, pay at least 3% more than the balance or $25, whichever is greater.
Know that 30% of your credit score is based on the credit card balance to credit limit ratio. Having a low balance and a high credit limit is ideal and the better your credit history, the easier it is to get approved for a high limit.
It could take anywhere from a few months to two years to build up your credit and get approved for an unsecured credit card. It depends on the lender and your activity. The best credit card issuers allow you to manage your account 24/7 with online access and get free credit reports so you can monitor your credit score in real time.
Monitor Your Credit Score and Account Activity
Financial best practices start with a budget. You want to be aware of what you’re earning, what you’re spending, and where that money is going. If you haven’t already, build yourself a budget. You can use a spreadsheet or you can download a free app like Mint or Wally which makes it easy to track what’s coming and going.
Make sure you align your priorities with your budget. If your priority is to save for a business project, a rebuild on your house, or a family vacation, then make sure you’re setting that money aside each month. If your priority is to send your kids to daycare, make sure you’re building that monthly daycare expense into your budget.
Monitoring your spending habits extends to your credit cards as well. You should know how much you’re spending with your credit card(s), how much interest you’re accruing, and how much you can afford to pay off. Most credit card companies or banks offer 24/7 online access and most secured credit cards allow users to view their credit report each quarter free of charge and without impacting their score.