Secured credit cards harder to get
Be aware though, that not every card is a good deal. Read the terms and conditions and consider the following tips:
- Get a card that reports. A card that reports to the three major national credit-reporting agencies will help you establish or improve your credit history.
- Watch out for excessive fees. Secured cards will usually charge an annual or membership fee, but "in general, you don't want to pay an annual fee over $20, $30," says Arnold. Comb the terms and conditions for disclosures about other fees, such as those for processing, usage, additional cards or "rush" delivery of the card.
- Look for low rates. The mean APR for secured card offers is 19.07 percent, says Andrew Davidson, vice president of competitive tracking services at Synovate Mail Monitor, a global market research company. Shoot for the lowest rate you can find and you'll pay less interest on revolved balances.
- Beware the non-existent grace period. Beyond checking for the lowest rate, make sure the card has a grace period -- this is how many days you have before the issuer applies interest to your new purchases. Most cards have a grace period of 20 to 25 days that applies only when the previous balance has been paid in full.
Cards that don't have a grace period mean that charges would immediately accrue interest, regardless of whether you paid the balance the previous month. New Millennium secured cards, for example, do not have a grace period for purchases or cash advances. Read the terms and conditions to see how finance charges are calculated.
- Make sure you can graduate. After making steady payments for a stated number of months, the issuer will refund your deposit and upgrade you to an unsecured card, typically within a year. Check the eligibility guidelines or ask if they're not posted. Also, check the array of credit card products the bank offers. Look for companies that offer unsecured cards besides those that are predatory and laden with fees, suggests Robert D. Manning, director of the Center for Consumer Financial Services at Rochester Institute of Technology and research professor of consumer finance. That way you won't have to apply somewhere else as soon as you qualify for an unsecured card. New inquiries on your credit report could temporarily ding your credit score.
- Consider "interest"-ing cards. The Citi Secured MasterCard and the Orchard Bank Secured MasterCard, for example, pay interest on the deposit. Free money is hard to pass up, but make sure the interest rate and other terms are favorable based on your spending and payment habits.
Also, first ask about or read the eligibility requirements to make sure you get approved. Generally, most people get approved for secured cards, but you can get turned down. For instance, Wells Fargo mandates that applicants not have declared bankruptcy within the last year or have unsettled liens. You have to be older than 18 in certain states to qualify for a card.