Are there other ways to re-build credit other than credit cards?
The 5 Best Secured Credit Cards
Updated April 2013
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: The Best 0% Balance Transfer Credit Cards)
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.
1. Capital One® Secured MasterCard®
With this card, a minimum security deposit of $50 will earn you a $200 credit limit. Since Capital One is extending you a credit line in excess of your deposit, it will consider the applicant’s ability to pay before acceptance. This card’s standard interest rate is equal to the Prime Rate plus 19.65%, and there is a $29 annual fee. Like all Capital One cards, there are no foreign transaction fees. This is a great feature not just for vacationers, but also for immigrants who have no credit history and may travel outside of the country to visit family.
2. Citi Secured MasterCard
This secured card comes with many of the benefits of a standard credit card including car rental insurances and retail purchase protection. In addition, 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.
3. Wells Fargo Secured Visa Card
Wells Fargo offers their secured card to applicants with any credit history, so long as they have not declared bankruptcy in the last 12 months and have no unsettled liens. Once accepted, cardholders must make a deposit of between $300 and $10,000, which becomes their credit limit. This card comes with standard Visa benefits including auto rental insurance. Cardholders who carry a balance will incur interest at a rate equal to the Prime Rate plus 15.74%. There is a $25 annual fee for this card.
4. U.S. Bank Secured Visa Card
This card 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.
5. BankAmericard Secured Visa
Bank of America offers its fully secured Visa card to customers who
want to rebuild their credit. This card allows you to determine your credit line by making a deposit of
between $300 and $4,900. This kind of flexibility is ideal for those who need a card for travel or other
large expenditures. It has an annual fee of $39 and an interest rate equal to the Prime Rate plus 16.99%.
And after 12 months of car membership, your account can be reviewed to see if you are eligible to have
your card converted to a standard account and your security deposit returned.
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.
By choosing the right secured card, you can build your credit history while enjoying many of the benefits of standard credit cards.
You can always piggy bank off someone's account, but other than that, secured credit card is the best way to go.
Great information, I didn't know some banks actually had underwriting guidelines for secured credit cards. I was under the assumption that since it's secured by cash, there guidelines would be pretty lax.
At CreditSense we help people with their credit recovery. There's a problem with your #1 pick. People who are forced to get a secured card are typically in a credit rebuilding mode. They go secured because they need a card to report positively on their credit. The Orchard card, although they typically report to all three bureaus, have a natural cap on the positive they contribute to a person's credit score. Readers are far better off if they go with a major bank secured card like your #2-#5 picks.
I am shopping for a secured credit card right now. Orchard was recommended and sounds great (except for the annual fee).
Could you explain further what you mean by "The Orchard card... have a natural cap on the positive the contribute to a person's credit score."?
The capital one secured card is a good one. We tend to recommend that one for consumers starting out. It works wonders and will help with your credit later down the road, give it a s hot.
Orchard Bank is really fantastic. Deposit is just $200, but the interest is very low, namely 4.74%. It is very atractive. Thank you.
How about a debit card instead? My debit card works just fine reserving hotel rooms and rental cars. Plus no debt and no dumb annual fee.
Duh,
Debit cards are fine and I use them as well. Secured credit cards help you on a path to establishing good credit. If you ever want a car loan, house loan, or just save on insurance or make it easier to rent an apartment, or a variety of other uses, then you will want good credit.
The other problem with using a debit card is that when renting a car or reserving a hotel, they hold a deposit. Usually from $200 - $500. Since I travel for work, I can't afford to have $1000 held up in deposits that take 2-10 business days to be returned.
Maybe next time you make a comment like that you will provide more information. I saw your comment and thought, "Great, I will check them out."
Turns out you can ONLY use them if you or your parent served in the military. Well mine did, but I didn't want to put that down (didn't know it was necessary information - just thought they were being nosy). Since I didn't do the form right the first time, I can not go back and edit it after the fact. Now I can't use them without calling in to even try.
There was no info on their site that said this, except when you get to the end, if you didn't acknowledge the relationship, then you simply can not apply for the card.
Waste of 1 hour of my life that would have been better off if you simply said....
"You forgot USAA. They're great as well! Provided you or your parents are veterans and you tell them on the application."
Argh!!!!
I know it doesn't help with the time wasted already, but USAA has they most helpful, easy to talk to, and enjoyable customer service I know. I think you would definitely enjoy the experience on completing anything if you just go through them. Good luck.
Thanks for the advice. Just read somewhere else that Citi was horrible but I have been banking with them for years with no problems. Will go into a branch and see about a card.
Ok im new to this credit card stuff i need good advice and real help i have no credit and looking to build an i dont know who to go with and i heard doing secured is good to start and how much perecntage do i look for? is chase good?
As of right now Chase does not offer a secured credit card. I have been banking with chase for over a year and have asked if they had one and it turns out that they dont.. Wells Fargo and Bank of America have some pretty decent secure credit cards that will surely help you to establish a credit history.
In this article, under "When you should get a secured card ...," Jason states, "obtaining a secured card and making on-time payments is a critical way to rebuild one’s credit." I'd like to know how? Banks don't report secured credit cards to my knowledge so how would any credit bureau know of the favorable experience?
ORCHARD does not follow the rules. After 1 1/2 years of paying on time and more than minimum, they said they would graduate to unsecured. They changed the rules and decided not to. And there isn't anything you can do about it except close the account and get your money back, which defeats the purpose of long time credit.
PUBLIC SAVINGS was the best secure card, but they went out of business and absorbed by Capitol Bank. There was low interest rate for paying on time (6%) and no annual fee. I had 2 cards from them at $200 limit each.
After Capitol took over, the increased interest rate to 25% and added a $50 annual fee! I ended up closing both accounts.
Watch out for Capitol one. Late on one payment and they will hound you, your family and friends to the ends of the earth!
Can you recommend any Secured Credit Cards that give you airline miles as well? That's really my only reason for wanting a secured card. Thanks!
Does anyone know of a a minimum credit score that is needed to obtain one of these secured credit cards? Thanks.
My wife has bad credit and we have been thinking of get a secured card... Is that the way to go or should I get her a card on my amex account... Would that help her the same or more???? Could that damage mine????
I would avoid the U.S. Bank card at all costs, unless you have money laying about you wouldn't mind them holding onto. I initially applied about 3 weeks ago. I was sent to a "sorry we cannot approve you at this time" screen. Never received an email, snail mail or even a phone call. After about a week I decided to just up my line of credit with my capitalone card. Which, I absolutely love by the way. Just a few days ago I went to check my bank account, and guess what? USBank took out $300 for a deposit leaving me with overdraft fees. After speaking with tons of representatives who all made me feel like crap, one in particular who told me I shouldn't have "blown my money" and should have left it for their disposal at any time. It was my personal account I use for household items, not my joint account, so keeping an extra $300 for a card I was told I wasn't approved for seemed a tad silly. After speaking with several USBank employees I have been told it isn't their "policy" to communicate with you unless they approve you. And now, for the REAL kicker of the whole thing. They haven't even approved my application. Even with my $300. They are currently still "reviewing" my application to determine whether they will give me a card. And, it gets better. I was told on February 1, 2013 that I will have an answer in about 3 days. On February 6, I was told the same thing. Once they "decide" they will either a. send my money back to my bank if they deny me, which will take 10-14 days or b. assign me a card number and issue a card within 7-14 days, then once I have a card number, THEN I will be mailed, finally, a card to use with my money. So, in 14-28 days I will finally have access to, if I am lucky.
To cge1234 - that is the most horrible thing I've ever heard a company do. Thank you for the warning for U.S. Bank. I hope you reported them.
It's amazing how you didn't say anything about local community Banks or Credit Unions in your home town. They will help you in more ways and NOT charge you 20% or more like the Big Banks. They are ripping all of us off in so many ways. Wake up people and stay local in your community and quick supporting the Big Banks. They don't care about you.
Thanks for listening.
You've stated that the WF Secured Visa card comes with standard Visa benefits including auto rental insurance.
I was told that the WFSV does not cover auto rental insurance.
