The Best Secured Credit Cards
Credit cards provide a method of funding for some of life’s unexpected or major expenses, but these revolving credit accounts are not readily available to certain individuals. If you are just starting out in your financial life and have not yet established a credit history or profile, securing a new credit card can be a challenge. The same goes for anyone with previous credit issues, such as late payments, accounts in collection status or high balances on revolving credit accounts. Fortunately, credit can be established or repaired through the use of a secured credit card.
Credit providers offer some individuals the opportunity to open an account without previous credit history or with a less-than-perfect credit through a secured credit card. This type of credit card is made available with a lower credit limit than conventional credit cards and is secured by collateral, such as a savings or checking account. Secured credit card providers extend a revolving credit limit based on the amount of the pledged savings or checking account balance to help offset the risk of taking on a borrower who otherwise may not be able to qualify for a credit card. Over time, secured credit cards evolve into traditional credit accounts, sans the need for pledged collateral, but only if and when the provider is certain the borrower has established a solid history of on-time repayment.
Here are the best secured credit cards available to individuals with no credit history or a lackluster credit past.
Discover it Secured Credit Card
Discover is a sound starting point for individuals seeking a secured credit card to shore up past credit mistakes or establish a new credit identity. The provider offers a secured credit card through its Discover it brand, available with no annual fee and no late fee assessed on the first late payment. A minimum deposit $200 is required for all applicants, and total credit line is determined based on a review of credit history, income and other outstanding debts. Discover reviews each account after month 12 to determine if the initial deposit can be returned, based on the individual’s borrowing and repayment habits.
One of the reasons Discover it Secured credit card tops the list is that it offers borrowers the opportunity to earn rewards on purchases – a unicorn in the secured credit card world. Up to 2% cash back can be earned for restaurants and gas station purchases, up to a cap of $1,000 in spending each quarter. All other purchases receive 1% cash back. For new card members, Discover will match any cash back earned for the first year automatically. It is important to note that the annual percentage rate on Discover it Secured credit card may be substantially higher for new borrowers compared to other secured or unsecured cards.
Capital One Secured MasterCard
For individuals looking for a low deposit secured card, the Capital One Secured MasterCard is a great choice. Depending on credit history, Capital One offers a credit line of up to $200 with a deposit as low as $49. No annual fee is assessed for cardholders, and a credit line increase may be applied for without an additional deposit within the first six months of account opening. The APR offered to new card members is a variable rate, starting at 24.99%.
The Capital One Secured MasterCard is a no-frills option for individuals needing a card with a lower deposit, but there are some drawbacks. Capital One imposes more stringent qualification requirements on borrowers, despite its secured nature, meaning a recent bankruptcy or no checking or savings account will disqualify an individual. Additionally, the secured credit card does not offer perks in terms of rewards or cash back. For these reasons, this card is best suited for individuals looking to establish credit history in a cost effective way, as opposed to those looking to repair severe credit damage.
OpenSky Secured Visa Credit Card
Individuals looking for a secured credit card for credit history repair may find solace in the OpenSky Secured Visa Credit Card. Underwritten by Capital One Bank, the OpenSky secured card offers a credit line of up to $3,000, equal to the deposit made at the time the account is opened. Borrowers have the opportunity to ask for a credit line increase after the account has been established for some time, but an additional deposit may be required to offset some of the lender’s risk. The annual percentage rate for new cardholders is relatively low compared to other secured card providers, starting at a variable 17.64%.
The OpenSky Secured Visa credit card does come with an annual fee of $35, and it does not offer any rewards program or cash back for purchases. However, the secured card does not require an initial credit check nor is a checking account necessary. Individuals in need of credit repair without concern for the amount of deposit to secure the credit card are a good fit for the OpenSky Secured Visa credit card.
U.S. Bank Secured Visa
The U.S. Bank Secured Visa is a solution for both newbies to the credit scene as well as though with less-than-stellar credit history. A deposit of no less than $300 is required to establish the account, but borrowers may pledge up to $5,000 for collateral. The credit line offered is equal to the total deposit on hand, and an annual fee of $29 is assessed for all cardholders. The annual percentage rate charged on purchases is less aggressive than some card offers, starting at 18.99%.
Borrowers who utilize the U.S. Bank Secured Visa do not have the ability to earn rewards or cash back, but a review of the account can be done as soon as 12 months after account opening to determine whether an unsecured card is available. The amount used for the deposit is held in an interest-bearing savings account which is beneficial when the deposit is returned. For a simple, lower interest rate card, the U.S. Bank Secured Visa is a smart choice.
USAA Secured American Express or Visa Card
For active or veteran military members and their families, the USAA Secured American Express or Visa Card is a great solution to repairing poor credit or establishing a credit history. The secured card offerings through USAA require a deposit of no less than $250 but can be as high as $5,000, and the credit limit is equal to the amount set aside. What makes the USAA secured cards different from most other providers is the fact that the collateral is deposited into a two-year certificate of deposit (CD) that earns more interest than a traditional savings or checking account. As the interest is credited to the CD, borrowers have the opportunity to request a credit line increase.
The USAA secured credit cards assess an annual fee of $35, but the interest rate on purchases can start as low as 10.15%. There are no rewards associated with either the Visa or American Express secured cards through USAA, so this option is best fit for military members looking for an account that provides additional interest on deposits and a potentially lower interest rate on purchases.
While secured credit cards provide an opportunity for individuals to establish a credit profile or repair past credit mishaps, not all cards are created equal. Prior to applying for a secured credit card, it is important to fully understand the annual percentage rate charged on purchases, any annual fees imposed, and the rewards or lack thereof available.
See all the best credit cards here.