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 Secured 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.
Capital One® Secured MasterCard®
The Capital One® Secured MasterCard® is the best secured credit card available — sign up now! This is one of the few cards that may extend you a credit line in excess of your deposit. If you make a security deposit of $49, $99, or $200, you will be able to get an initial $200 credit line, determined based on your creditworthiness. This card's standard interest rate is 24.99% variable APR. Like all Capital One cards, there are no foreign transaction fees. This card also comes benefits like auto rental insurance, travel accident insurance, and price protection. The best part — there is no annual fee.
OpenSky Secured Visa Credit Card
With a 17.64% variable APR and $35 annual fee, the OpenSky® Secured Visa® Credit Card is a strong contender on this list. Additionally, you may even get approved for a credit line increase up to $5,000 at any time. There's no credit check so you don't need to worry about an inquiry affecting your score, or even getting declined because of it. Choose your credit line as low as $200 up to $3000, secured by a full-refundable security deposit.
USAA Secured Card® American Express® Card
For military members and their family, the USAA Secured Card® American Express® Card is an attractive option. Your deposit is put into a 2-year CD to earn interest, so your deposit is guaranteed to grow. The APR varies between 10.15% to 20.15% depending on your credit worthiness. There are no extra fees and no foreign transaction fee. This is also one of the few secured cards that come with extra benefits like rental car insurance and extended warranty. It also includes free CreditCheck Monitoring with Experian for six months. The annual fee is $35.
Citi® Secured Mastercard®
The Citi® Secured MasterCard® from our partner Citi is another good option to help you build your credit history. Your credit line is equal to your security deposit; the minimum is $200, but you can deposit up to $5,000. In addition to monthly notifications to the credit bureaus, this card can help you stay on track with Auto Pay, online Bill Pay, and alerts. The variable APR is 22.24% and there is no annual fee.
primor® Secured Visa Gold Card
With the primor® Secured Visa Gold Card, your credit limit is equal to the amount of your savings (which accrues interest, but does not compound) — anywhere from $200 to $5,000. The annual fee is $49 and the APR is 9.99% fixed. This is the lowest APR you'll find on a secured card, so it's great for those who need to keep a balance on their card. However, this card also has a lot of fees for various activity on your account. (They also have a Classic version with a $39 annual fee and 13.99% fixed APR.)
Excent™ Secured Credit Card
The Excent™ Secured Credit Card is one of the few secured cards that allow you to earn interest on your deposit. The minimum deposit is $200 (up to a maximum of $5,000), which is held in an account and accrues interest until you close your Excent Secured account. The Gold version has has a purchase APR of 9.99%, one of the lowest APRs available with a secured credit card, and an annual fee of $49.
Capital One® Platinum Credit Card (Unsecured)
The Capital One® Platinum Credit Card isn't a secured credit card — you don't have to deposit money in order to get credit. It's a standard unsecured credit card that's offered to those with less than stellar credit. You may also get access to a higher credit line if you make your first 5 monthly payments on time. The variable APR is 24.99% with no annual fee, no balance transfer fee, and no foreign transaction fee.
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.