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.
Capital One® Secured MasterCard®
This 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. Your minimum security deposit gets you a $200 credit line. This card's standard interest rate is 24.9% 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, price protection, and Capital One® Credit Tracker, a tool that gives you free access to your monthly credit score and credit tips. The best part -- there is no annual fee.
OpenSky® Secured Visa® Credit Card
With a 17.39% 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 in your first year. 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.
Unity® Visa Secured Credit Card
Most secured credit cards cap your credit limit to about $5,000. The Unity® Visa Secured Card allows a deposit up to $10,000. It's great for people who need a higher credit limit to meet their needs. It also offers an introductory APR of 9.95% for six months. Then it goes to 17.99% fixed (even for cash advances!). The annual fee is $39.
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 (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.)
USAA Secured Card® American Express®
For military members and their family, the USAA Secured Card® American Express® 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 9.90% to 19.90% depending on your credit worthiness. There are no extra fees and a low 1% 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.
Capital One® Platinum Credit Card
The Capital One® Platinum 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. It includes free access to your credit score with the Capital One® Credit Tracker, so you can monitor your score and learn about how your spending affects it. You may also get access to a higher credit line if you make your first 5 monthly payments on time. The APR is 24.9% 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.
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 bank, card issuer, airline or hotel chain.