The best-secured credit cards for bad credit
One of the quickest ways to build your credit is by using a credit card. But if you have a poor credit history, finding a credit card may not be that easy. This is where secured credit cards come in. It is actually easier for people with bad credit to qualify for secured cards compared to unsecured ones.
The reason behind this is that secured credit cards require a security deposit, and this minimizes the risk involved. Secured credit cards for bad credit can also help rebuild your credit. The amount you give as a security deposit is usually equal to your credit line limit.
If for instance, you deposit $200, you will receive an initial 200 credit line. If you default on your account, the card issuer will use your security deposit as compensation. This is why secured credit cards are available for people with poor or low credit history.
But if you pay your credit card bills on time, you can get your deposit back and you may also qualify for an unsecured card that does not require a security deposit. It is therefore very important to use your credit card wisely to improve your credit among other benefits.
Secured vs. unsecured credit cards
The type of credit card you need, whether secured or unsecured, depends on your credit history. When it comes to unsecured cards, no security deposit is required and therefore, they come with risks to the issuers. A good or excellent credit is therefore required to qualify for the best-unsecured credit cards. Some unsecured cards for bad credit also have high fee charges.
If you do not have good credit, applying for a secured credit card for bad credit can be a good option and once you pay your bills on time, you can upgrade to an unsecured credit card that offers more affordable terms.
How do secured credit cards work?
Secured cards work the same way as the unsecured ones. The only difference is that a security deposit is required. You can use the card at any place where a credit card is accepted, including shopping at online stores. The card can help rebuild credit when used responsibly.
This includes paying your bills on time and keeping your credit card balances low. If you carry a balance, you will be charged an interest. Some of these cards also have an annual fee, but this fee is usually less than $50. If you do not qualify for an unsecured credit card, finding a secured one is the best place to start.
Credit card issuers report the consumer's behavior to the 3 major credit bureaus i.e. Equifax, Experian, and TransUnion. This information is usually reported on a monthly basis and if you use your credit card wisely, your score should improve within a few months.
Review of the best credit cards for bad credit
Capital One® Secured Mastercard®
This is among the best secured credit card options considering that you can get access to a higher credit limit with no additional deposit required. The card does not have an annual fee. It also reports to the major credit bureaus and responsible use can build your credit. Once you apply for Capital One® Secured Mastercard®, you will get an initial 200 credit line after making a security deposit $49, $99 or $200 depending on your creditworthiness. After making payments on time in the first 5 months, you can qualify for a higher credit line. Additionally, you can easily manage your account 24/7 with online access by phone. The card is accepted at millions of locations worldwide. It also does not charge an annual transaction fee. However, this card does not come with rewards and it also has a high APR of 24.99% variable.
2. Discover It® Secured
With the Discover It® Secured credit card, you have the chance to rebuild your credit. The card has no annual fee and you will benefit from cash back rewards. These features make Discover It® Secured one of the best secured credit cards we have in the market today. The card gives 2% cash back on restaurant and gas purchases up to combined $1000 in purchases each quarter. You will also get 1% cash back on all other purchases. However, the card has a high APR of 24.99%, and you should, therefore, pay your bills on time to avoid the interest charges. With the card, you can also build your credit with the 3 major credit bureaus. Once approved, a refundable security deposit of $200-$2500 is required. Your account is also reviewed automatically after 8 months to see if you can have your deposit back and upgrade to an unsecured card.
3. SDFCU Savings Secured Visa Platinum Card
The card can be a good option for people who want to rebuild their credit and also those who want to establish their credit. Membership is required to qualify for SDFCU. You can become a member if you are an employee of the Department of State and several other organizations.
A security deposit of at least $250 is also required when applying for the credit card. The card does not require a credit check and there are also no minimum income requirements. Your credit limit equals to your security deposit. Responsible use of the card will also help rebuild your credit.
Another benefit of SDFCU is that it also comes with a rewards program. You can earn a Flexpoint on every dollar you spend on purchases. You will also earn 5 points for every bill you pay through Bill Pay and 5 points on every dollar you spend on purchases made with Perks Points Mall. These points can be redeemed for merchandise gift cards, charitable donations, or travel. The card does not have an annual fee. It doesn't have a foreign transaction fee either. The card has a low APR of 13.99%.
Other benefits include;
- 25 days grace period on purchases
- No balance transfer fee
4. U.S Bank Aeromexico Visa Secured Card
The card reports to the major credit bureaus and making monthly payments on time will help rebuild your credit. It does not charge an annual fee for the first year. You will also get $3,500 bonus miles on your first spending.
A minimum security deposit of $300 is required when you apply for the card. Cardholders also earn 2X for purchases of gas, grocery, vacation packages, and Aeromexico airfare. You will also get 1X miles on everyday spending. After making on-time payments for 12 months, you will graduate to an unsecured credit card. If you like traveling, you will benefit from the car rental insurance and travel insurance benefits. But with all the benefits that come with the card, there are several other things that you need to watch out for.
First, the card has several fee charges. This includes foreign transaction fee, cash advance fee, and a late payment fee. The card also has no intro APR. The APR of 24.99% will start applying to your purchases immediately you are approved. But you can take advantage of the 24 days grace period at the end of every billing cycle to pay off your balances and avoid the high-interest charges. Cardholders can manage their account online. The card has an annual fee of $25.
5. Wells Fargo Business Secured Credit Card
Wells Fargo Business Secured Credit Card is designed for people with bad credit. When applying for the card, a minimum deposit of $500 is required. Cardholders can also choose the rewards program they want. You can either choose 15% for every dollar spent on purchases with no limits or one point for every dollar you spend on purchases. You will also earn 1000 bonus points every month you make purchases up to $1000. If you use the card responsibly, you can upgrade to an unsecured card. The card does not charge a foreign transaction fee and you will also have a chance to view your free fico score every month.
6. Citi® Secured Mastercard®
The credit card is also designed for people with bad credit. It can also be a good option for those who want to establish their credit history. Since it is a secured card, a security deposit of $200 minimum and $2500 maximum is required. The card does not charge an annual fee. However, people who have filed for bankruptcy in the last 2 years may not be eligible for the card. The card also does not offer rewards. Its main purpose is to help people establish or rebuild their credit rather than offering rewards programs. If you have a good payment record, your score will improve and you can qualify for a better credit card that offers points or cash back rewards. When the card is used responsibly, you can also get your deposit back. The card has purchase and balance transfer APR of 23.99%.
7. Green Dot Primor® Secured Visa® Classic Card and Gold Card
There are 2 secured credit cards offered by Green Dot Bank. These include Green Dot Primor® Secured Visa® Classic Card and Green Dot Primor®Secured Visa ®Gold Card. Both cards are available for people with bad credit. These cards do not have the best features in the market, but they can come in handy for people who want to establish or rebuild their credit. Once you qualify for any of the cards, a security deposit of between $200 and $5,000 is required. The cards also feature a fast and easy application process. Green Dot Primor® Secured Visa® Classic Card has an annual fee of $39 and regular APR of 13.99% fixed. Green Dot Primor®Secured Visa ®Gold Card has an annual fee of $49 and a regular APR of 9.99% fixed. There are no minimum score requirements. You can either choose from a Visa or Mastercard version of the credit cards.
8. OpenSky® Secured Credit Card
The card is also designed for people with bad or low credit history. No checking account is required when applying for the card. There are also no credit check requirements. The card has a fast and easy application process. Responsible use of the card can also improve your credit score. It has a regular purchase APR of 19.14% variable and an annual fee of $39. A minimum deposit of $200 is required when opening the account.
Do you have a bad credit?
A credit score is the numerical representation of a consumer's financial history. Your credit score plays a very important role in your financial life. The score is used by lenders to determine whether you will be approved for a loan or credit. There are different types of credit scoring models available, but the most widely used is the fico score. Credit reporting agencies use data in your credit report to come up with fico scores.
The credit report information includes things like your payment history, outstanding debt, bankruptcies, and defaults. FICO credit scores range from 300-850. If you have a score of less than 579, you may not be eligible for the best credit cards we have in the market. The same applies to consider with low credit history.
Can you get denied for a secured credit card?
If you have had a recent bankruptcy, you can be denied for an unsecured credit card. Your application can also be denied if you do not have income or have a negative credit history. If you are denied, you can apply for another secured credit card that does not have credit check requirements. Most of these cards charge more than other credit cards, but they can be of great help if you want to rebuild your credit.
Benefits of secured credit cards
It is easier to get approved for a secured credit card compared to a traditional credit card. This is because a security deposit is required when applying for the card and this reduces the risk to the lenders. The card also reports to the 3 major credit reporting agencies.
If you pay your bills on time, keep your credit card balances low, your credit score will improve within a few months. You can also upgrade to an unsecured credit card and get your deposit back.
Another benefit of unsecured credit cards is that you can earn interest on your deposit. The deposit is put in an interest-bearing savings account and will earn interest depending on how long your deposit remains in the account.
Lastly, the cards also come with a lower APR compared to traditional credit cards for people with bad credit.
Secured credit cards work the same way as prepaid debit cards. You have to pay money before the card is used. The only difference is that with prepaid debit cards, you are making purchases using your own money and not borrowed funds. The money is loaded onto your card, and it is used by the issuers to pay for your purchases. If you want to rebuild your credit, it is better to apply for a secured credit card and not a prepaid debit card.
This is because, with a prepaid debit card, your account information is not reported to the credit bureaus, meaning that it won't help in rebuilding your credit. There are also fees involved in prepaid debit cards that are not charged in secured cards.
Important things to consider when using a secured credit card
Although you need to give a security deposit when applying for a secured credit card, they can be a great tool for people who want to rebuild their credit. But it is only when you use them responsibly that they will achieve positive results.
First, use your credit card to pay for small purchases every month. Secondly, ensure that your credit card bills are paid in full and on time every month. When you pay in full, no interest will be charged. Remember that secured credit cards have higher interest rates compared to unsecured cards.
Lastly, it is important to monitor your credit score. Once your score improves, you can upgrade to an unsecured credit card.
The best way to establish or build your credit is by getting a secured credit card for bad credit. If you build your credit, you can qualify for an unsecured credit that comes with rewards programs.
Once you are approved for a secured credit card, it is important that you pay your bills on time, keep your balance low and always monitor your credit reports to ensure that they updated and error-free before applying for a credit card.
Rudi is a credit analyst who writes articles about credit scores, building credit, and consolidating debt. His know-how on poor credit and credit unions make his input invaluable to our company. There is no credit score out there that Rudi can’t help with.