How To Choose A Secured Credit Card
If youre looking for a secured credit card, its important to remember what theyre for: building or repairing credit. Secured cards wont provide you with luxury perks, but with intelligent use, youll be on your way to qualifying for premium cards. Heres what to consider when choosing a secured credit card:
Security deposit requirements Look for cards that have favorable security deposit minimums and maximums. Higher deposit requirements can make it difficult to open an account if you cant afford them. Lower security deposits for secured cards limit how you can use the cards and can make it harder to have a positive .
Path to upgrade Secured cards are temporary solutions to help you build credit for the long term. Some of the best secured card issuers also have cards meant for good and excellent credit. When youve improved your credit, you can potentially acquire these cards, often without incurring another hard inquiry on your credit report or closing your current account.
Your card issuer may refund your deposit with responsible card use, upgrading you to an unsecured version of your card. If your secured card issuer specializes in cards for poor credit and doesnt offer good unsecured credit cards, youll have to look elsewhere for your next card as your credit score improves.
Check out Bankrates cardmatch tool, and check out some cards you may be prequalified for to see if theyre a good match for you.
Secured Credit Card Basics
How secured credit cards work
A secured credit card requires a deposit of certain amount of money into a bank account, and the credit limit can be based on a percentage of the deposited amount. This deposit for a secured credit card acts as a sort of collateral, and funds are not used for regular payments. This is unlike a prepaid card which draws from the funds you deposit. Like traditional unsecured cards, secured credit cards come with APRs, so paying attention to your spending and balances can help you keep interest payments low.
Can secured credit cards help your credit?
Typically, secured credit cards can be a good tool to help you establish or build your credit, as long as you make your payments on time each month, and keep your balance low relative to the credit limit, for positive marks on your credit report each month. Some issuers may not report to any or all credit reporting bureaus, and so it is important to check the issuerâs terms and conditions. As your on-time payment history lengthens, your credit score should improve. Having a secured card will be one of many steps on your path to achieving excellent credit, and so when your credit needs grow, you will be ready to move towards those next steps.
Applying for a secured credit card
Secured credit card details
What Are Secured Cards & How Do They Work
Secured credit cards are similar to regular, unsecured credit cards. However, secured cards require applicants to make a deposit to open a card. That deposit is held by the issuer just in case you dont pay your bill, and usually dictates your credit limit. Typically, the more you deposit, the higher your limit.
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How Can You Choose A Secured Credit Card
Here are the important points to consider when choosing a secured credit card:
- Ability to upgrade.
Ability to upgrade. Some issuers upgrade cardholders, but this shouldnt be a deal breaker if yours doesnt because you can open an unsecured credit card with another issuer.
Check when the issuer will evaluate your payment history for a credit limit increase, and plan to pay more toward your security deposit if required.
Fees. Beware secured credit cards with annual fees, plus application processing and monthly maintenance charges.
Initial deposit. The amount you deposit is often equal to the cards credit limit. It is typically between $200 and $2,500.
Prequalification. Some secured card issuers let you check whether youre highly likely to get approved. Prequalifying for a card wont affect your credit score.
Reporting. The best secured credit cards report to the three major credit bureaus, but read the fine print to confirm and contact the issuer if you are uncertain.
Will Having Two Secured Credit Cards Help Build Credit Faster
While having multiple secured credit cards can increase your amount of total available credit thus improving your credit utilization ratio it wont result in a quicker improvement to your credit score.
Instead of investing in a security deposit for a second secured credit card, you may want to consider putting that money toward a . These loans essentially allow you to lend money to yourself.
Every payment you make toward the loan is placed into a savings account. Your on-time payments are reported to each credit bureau to help build your credit history. Once you make all of your payments, the bank returns your money to you.
To understand why this is more beneficial than a second secured credit card, we have to break down some numbers.
Approximately 35% of your credit score accounts for your payment history. This model does not care how large the payments are only that they are on time. A $500 payment will give you no more of a boost in this category than the minimum payment required as long as both payments are made before their due date.
Making two on-time payments will add a second positive data point to your credit history each month, but it wont cause a major jump.
The next largest factor in your credit score is your credit utilization. This calculates how much of your available credit is currently used. Again, keeping your balance low on one card has the same impact as keeping your balance low on two cards.
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Which Is An Example Of Easy Access Credit
Pawnshops, payday loans, rent-to-own, and title loans are all examples of easy access credit and how people can get fast cash. Using these services can make a bad financial situation worse, and habitually using them can create a cycle of bad debt that can be difficult to escape. 15.
Things To Consider Before You Apply For A Secured Card
- Your application will require some basic details, including your name and Social Security Number. Have your information ready.
- Check your credit score. You can check your credit score for free online, and knowing where you stand is essential before you get started. Also, errors arent unheard of on credit reports, so its worthwhile to make sure there hasnt been a mistake.
- Look for prequalified offers. Many cards and issuers will let you know ahead of time whether youd be approved, so you dont have to go through the full process or take a hit to your credit. The CardMatch feature is an easy way to find a selection of cards you may be prequalified for.
- Make sure you have enough money for the deposit. It could be as low as $49 or as high as a few thousand dollars, depending on the card and the issuer.
- Some cards require you to have a bank account to pay for the deposit, while others allow payment by check or money order.
- Look for a secured card that reports to at least one of the major , such as Equifax, Experian or TransUnion. Reports of good payment behavior to the credit bureaus are essential for building or repairing credit.
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First Progress Platinum Prestige Mastercard Secured Credit Card: Best Secured Credit Card For Bad Credit
Overview: This card doesnt require a credit history or minimum credit score for approval. Your card use is reported to all three major credit bureaus to help you build credit. Cardholders are required to put down a refundable security deposit of at least $200 to serve as the cards credit limit.
Pros: The card carries a regular variable APR of 9.99%, which is favorable for a secured credit card.
Cons: Theres a $49 annual fee, which is on the high side for a secured credit card.
Read more about the First Progress Platinum Prestige Mastercard® Secured Credit Card.
Opensky Secured Visa Credit Card
Our pick for: No credit check or no bank account
The OpenSky® Secured Visa® Credit Card charges an annual fee, but a lot of people will still want to take a look at it for two reasons. First, there’s no credit check required. Second, you don’t need a traditional bank account you can fund the deposit or pay your bill with a money order or Western Union payment. Read our review.
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The Top Secured Credit Cards In Canada
What Is a Secured Credit Card?
A secured credit card requires a cash deposit before getting an approval. It is also referred to as guaranteed credit cards.
Generally, your cash deposit becomes your credit cards limit. Although it may depend on the credit card provider, there are some will require a higher cash deposit for a lower credit limit. These are designed for higher-risk borrowers that is the main reason why a deposit is required. If the credit card user defaults, the credit card issuer will keep the deposit to repay the owed balance. Other than a security deposit is required, it may work the same as the regular credit card. You may use it for purchases in-store, online, through payment processing services, and use it to pay bills.
Advantages and Disadvantages
All financial products have corresponding pros and cons. Before getting a secured credit card, its important to know and understand all of the advantages and disadvantages so you know what youre getting yourself into. Below is a list of all the advantages and disadvantages of secured credit cards.
Build or Rebuild Credit. If you have no credit history or poor credit, getting a secured credit card is one of the easiest ways to build or rebuild credit.
Introduction to Credit Use. A secured credit card is a great introduction to what its all about especially if you are new to credit entirely. It may help you prepare for larger credit commitments in the future.
Build credit history
How To Use A Secured Credit Card To Establish A Credit History
Secured credit cards are a great option for people who are establishing their credit history for the first time. However, not all secured cards are created equal. If you’re starting your search for a secured credit card and are looking to establish credit for the first time, here are a few key things to consider:
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How To Use A Secured Card
- Only use the card for purchases you could afford to pay for in cash.
- Never be late in paying the bill. Set yourself a calendar alert up to a week before the bill is due.
- Avoid making only the minimum payment. Rather, try always to pay the bill in full each month, to avoid incurring interest charges.
- Track your credit score over time, using the tools provided with the card, and obtain a free copy of your credit report every year.
- Consider a secured card to be a temporary tool to establish a solid credit score. Use that score to get an unsecured, regular consumer credit card.
Pros Of Secured Cards
- Grow your credit score. If youre in the market for a secured card, its likely that your credit score could be in better shape. A secured card gives you the opportunity to establish your score with regular reporting to credit bureaus, a key step in boosting your credit as long as you make regular payments.
- Get into the right habits. Aside from the initial deposit, most secured cards work just like a traditional credit card. Using a secured product the right way will set you up for success when it comes time to upgrade to a better-tier card.
- Generous acceptance. One benefit of secured cards is that the down payment allows most providers to accept almost anyone as a cardholder. Those who have suffered from bankruptcy or other financial woes have a tool to regain their credit with secured cards.
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Rebuilding Your Credit With A Secured Credit Card
If youre looking to repair your credit rating, a secured credit card is one of the best tools at your disposal. You might think its wiser to play it safe and use cash, but that actually hurts your credit score. You actually need credit transactions in order to build up your score, so its important to use your secured card with intentional care.
Make sure that you make all your payments on time. Thats the number one thing you can do to repair your credit. A late payment of even a few days will undo a lot of your work toward credit repair. After a period of time making punctual payments, however, you will see your credit score improving visibly.
Features And Benefits Of Secured Credit Cards
Secured credit cards have a number of benefits and features surrounding them and are mainly for the people who do not have enough credit history required for an unsecured or prepaid credit card.
Some of the features of a secured credit card are:
- The applicants are not required to provide additional inquiries of their credit history.
- The process of approval is fast as the banks are risk-free since the individuals are offered the cards on the back of a deposit serving as collateral.
- There are some banks which offer interest on the security deposit. This helps the applicants of secured credit cards to earn interest on their deposit along with the benefits.
- Some secured credit cards come with a grace period. This helps individuals to get a few days more to make their payments, in case of any delay.
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How Do Secured Cards Work
To give you a line of credit, lenders want to know that youre likely to repay what you borrow. In many cases, a positive credit history provides the proof that credit card issuers need. Thats why it can be difficult to get approved for a credit card with a poor or limited credit history. Enter secured credit cards.
Opening a secured account is initiated with a cash deposit, which acts as collateral rather than a balance that you can pull from to pay off your purchases. Once youve made your deposit, most secured cards act just like unsecured cards. You can use them to make purchases in person or online, and then routinely pay off those purchases with the ability to build your credit. If you dont get your balances paid in a timely manner, youll face interest charges. In the worst case scenario where you start to default on payments, only then would your issuer start to pull from your deposit.
There is one notable feature often seen with secured cards. Because you provide the card issuer with a security deposit upfront rather than getting in on your creditworthiness, youll often see issuers set your credit limit equal to the security deposit you provided. Depending on your financial flexibility, you might be able to deposit more than the minimum to get a higher credit limit when initiating. After getting started, a secured card works like any other card you have a revolving line of credit that replenishes as you make payments.
How Can I Help Build My Credit With A Secured Credit Card
You can help build your credit with a secured credit card by developing these habits:
- Make payments on time: On-time payments are one of the main things that will help you build a good credit score.
- Watch your credit limit: Credit score bureaus also closely watch how close you are to using up your credit limit. Try to keep the balance on your cards at less than 30 percent of your total credit limit.
Secured credit cards are specifically designed to help students and other people with no credit history start building a good credit score. They come with bigger restrictions than regular credit cards, but with responsible use they can help you build up your credit.
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Plastk Secured Visa* Credit Card
- Annual fee: $48 plus $6 monthly maintenance fee
- Interest rate: 17.99% on purchases 21.99% on cash advances
- Security deposit: $300 $10,000
The Plastk Secured Visa* Credit Card is designed with credit building in mind and offers some other unique perks including:
- Free access to your credit score on a monthly basis
- Rewards points on everyday purchases
- Welcome bonus of 5,000 points
- 0% APR on purchases for the first 3 months
The card also comes with a versatile mobile app thats available on iPhone and Android devices.
To qualify, you must have reached the age of the majority in your province or territory, and be able to provide a security deposit.
Theres also a Plastk Secured Credit Card thats designed for students to help them build their credit scores.
- Interest rate: 12.99% purchases
If you have a fair or better credit score or are a newcomer to Canada, the Scotiabank Value Visa is worth checking out.
It offers a lower interest rate of 12.99% on purchases and cash advances, and you can also take advantage of the promotional 0.99% balance transfer rate for 6 months.
This card also offers up to a 25% discount when you use it to pay for car rentals at participating Avis or Budget locations.
Who Are Secured Cards For
If you have no or very little credit history, or a poor credit history and low , a secured card can help you build credit. In fact, it may be your only option. Banks usually want to see that youve handled credit responsibly in the past before theyll approve you for a regular credit card. However, because secured card issuers have a deposit to fall back on, risky applicants are more likely to be approved.
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