The 5 Best Secured Credit Cards
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Secured credit cards have a bad reputation, and most of these products deserve it. Too often, the companies that offer secured cards do so to prey on those with poor or little credit history by charging exorbitant interest rates and outrageous fees. Yet, the more I researched these products, the more convinced I became that the concept of a secure credit card is a sound one. Using the right product from a reputable institution, holders of secured cards can enjoy many of the benefits of standard credit cards that they might not qualify for. (See also: How to Pick the Best Secured Credit Card to Repair Your Credit)
How a Secured Card Works
Many loans are secured by collateral, such as those taken out for the purchase of a car or a home. In contrast, standard credit cards offer borrowers loans that are not secured by any property or deposits that can be repossessed in case of default. Therefore, applicants for unsecured loans must first be able to show banks a significant credit history. On the other hand, almost any applicant will qualify for secured credit card. With these products, the cardholder must first pay a security deposit that protects the bank against the risk of default. In all other ways, a secured card operates just like a standard credit card. Cardholders receive monthly bills that they must pay on time or incur interest and penalties. At the same time, banks will report payment information to the credit bureaus, allowing cardholders to build their credit history.
What to Look for in a Secure Card
Your first priority in shopping for a secured card will be to stick with a reputable bank and avoid the numerous products with high interest rates and unreasonable fees. Shoppers should look for a card with a low annual fee and perhaps one that might earn interest on their deposit. Finally, applicants should be aware that not all banks guarantee acceptance, so those with outstanding liens or a recent bankruptcy will not qualify for some of these cards.
Top 5 Secured Credit Cards
These are some of the top secured credit cards currently available.
1. Capital One® Secured MasterCard®
Since Capital One may extend you a credit line in excess of your deposit, it will consider the applicant’s ability to pay before acceptance. Your minimum security deposit gets you a $200 credit line. This card’s standard interest rate is 22.9% variable APR, and there is a $29 annual fee. Like all Capital One cards, there are no foreign transaction fees. This card also comes with the Capital One® Credit Tracker, a tool that gives you free access to your monthly credit score and credit tips.
2. First Progress Platinum Elite MasterCard® Secured Credit Card
There is no credit history or minimum credit score required for approval. The credit line is secured by a fully refundable deposit of $300 to $2000 which is submitted with the application. You can receive your deposit back at any time, once you've paid off your balance. First Progress offers three options for secured credit cards. The difference between them is in the APR and annual fee:
- First Progress Platinum Elite MasterCard® Secured Credit Card - 19.99% Variable, $29 Annual Fee
- First Progress Platinum Prestige MasterCard® Secured Credit Card - 11.99% Variable, $44 Annual Fee
- First Progress Platinum Select MasterCard® Secured Credit Card - 14.99% Variable, $39 Annual Fee
It's always advisable to not keep a balance on credit cards, especially when you're trying to rebuild or establish your credit with a secured credit card. With that in mind, the best option is the Platinum Elite MasterCard®, which has the lowest annual fee. However, if you think you'll need to keep a balance on the card, you should opt for the card with the lower APR.
3. First Choice Bank primor® Secured Visa Gold Card
With the First Choice Bank primor® Secured Visa Gold Card, your credit limit is equal to the amount of your savings -- anywhere from $200 to $5,000. There are no processing or application fees and you're guaranteed approval as long as your monthly income exceeds your monthly expenses by $100 or more (see application for additional details). The annual fee is $49 and the APR is 9.99% fixed.
4. Citi Secured MasterCard
With this secured card, Citi places cardholder’s deposits in an interest-earning account. The standard interest rate is equal to the Prime Rate plus 14.99%, and there is a $29 annual fee for this card. Unfortunately, Citibank says that it does not automatically accept all applications for this card.
You must visit a branch to apply for this card.
5. U.S. Bank Secured Visa® Card
This card also offers customers the ability to earn interest on their security deposits. Although the rates these days are not great, it is still nice to feel like the interest earned is going to you instead of the bank. On the other hand, if you carry a balance, you will incur interest at the rate of prime plus 17.74%. There is a $35 annual fee for this card.
6. Credit One Bank® Platinum Card
This isn't a secured credit card — you don't have to deposit money in order to get credit. It's a standard credit card that's offered to those with less than stellar credit. It also offers unlimited 1% cash back gas rewards. The specific terms of the card varies, depending on your credit worthiness. You may end up with an APR of 17.90% - 23.90% (Variable)*, and an annual fee of $35 to $99.
When You Should Get a Secured Card
Those who have poor credit or no credit history may be tempted to just wash their hands of the entire credit card business. Unfortunately, that would be a mistake. Obtaining a secured card and making on-time payments is a critical way to rebuild one’s credit. Whether it is right or wrong, companies today use credit scores for background checks when hiring and for setting rates for services such as car insurance. Furthermore, travelers will find it difficult or impossible to reserve a hotel room or rent a car without holding a credit card, even if it is a secured card. (See also: How to Rebuild Your Credit)
By choosing the right secured card, you can build your credit history while enjoying many of the benefits of standard credit cards.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.