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Author: Barry Bridges | bbridges@bankrate.com
The credit-builder’s guide to secured credit cards
A secured credit card is more than a convenient way to pay for the things you buy. It can also be an opportunity to rebuild or establish credit and help you get back on track financially.
Check out the expert advice and informative reviews on this page to get a head start on your personal finance comeback of 2020.
Compare our top picks for secured credit cards
A closer look at our best secured credit cards for 2020
Capital One® Secured Mastercard®
This card offers a $200 credit limit to all Cardholders. The best part is if your deposit may be as low as $49. Those with extremely low scores may be better off with a different secured card, but if you’re on the higher end of “bad,” consider this card.
Highlights:
- You can establish your credit line with your tax return by providing a refundable security deposit of $49, $99 or $200 and your initial credit line starts at $200 but you can increase up to $1,000 within 35 days of approval. You must provide your bank information when submitting your deposit.
- The APR is a variable 26.99 percent, but there are no annual fees, application fees or foreign transaction charges.
- If you make the first five payments on time, you can increase your credit limit without any additional deposits.
Discover it® Secured (not currently available)
Discover’s secured card may be the best available in terms of upside. If you’re fortunate enough to be approved, you can potentially earn hundreds of dollars back thanks to its rewards features and first year intro bonus.
Highlights:
- Earn 2 percent back on gas stations and restaurants — up to $1,000 in combined purchases every quarter — and get 1 percent back on everything else.
- Establish your credit line with your tax return by providing a refundable security deposit from $200-$2500 after being approved. Bank information must be provided when submitting your deposit.
The information about the Discover it Secured has been collected independently by Bankrate.com. The card details have not been reviewed or approved by the card issuer.
Citi® Secured Mastercard®
If you need a secured card but would like a credit limit that’s higher than a few hundred dollars, this is your best bet. Depending on your creditworthiness, you may be approved for a credit limit of up to $2,500.
Highlights:
- With a credit limit range of $200 to $2,500, this card gives cardholders the opportunity to have a higher credit limit than some other secured cards offer.
- There are no annual or monthly maintenance fees, which means more money in your wallet.
- Citi® Secured Mastercard® has a variable APR of 22.49%
OpenSky® Secured Visa® Credit Card
Here’s a card that acts as a lifeline for those in serious credit trouble. There’s no minimum credit score to be approved and no credit check, both rare in the credit card world. If you’re out of options and need help, this is the right card for you.
Highlights:
- The card reports monthly to all three credit bureaus.
- You can choose a credit limit as low as $200.
- The APR on this card is less than that of other secured cards—which typically hover between 24 percent up to 36 percent.
First Progress Platinum Prestige Mastercard® Secured Credit Card
If you’re rebuilding your credit, it’s important to pay your balance in full as often as possible. That being said, things happen and sometimes it’s necessary to carry a balance, in which case it pays to have a card with the lowest APR possible. If you need a secured card but would like the peace of mind knowing you won’t have outrageous interest payments should you carry a balance, this is your card.
Highlights:
- This card reports to all three of the major credit bureaus, a must if you’re looking to improve your credit.
- Approval is easy—there’s no credit check or minimum score requirement.
- Credit limit ranges from $200 to $2,000, depending on how much you put down.
How do secured credit cards work?
A secured card functions similarly to a prepaid debit card. In most cases, the amount you put down as a security deposit on a secured card is equal to the amount of credit you’re granted. With a prepaid debit card, the amount of value on the card is equivalent to the amount you deposit. There are a few key differences though between the two types.
Unlike a prepaid debit card which just stores the value of the money, you’ve put on the card, a secured card functions like a credit card in that you don’t have to pay the entire balance at the time of purchase.
For example, with a prepaid debit card, if you have $500 on the card, and you make a $250 purchase, you have $250 left to spend on the card. After that, there’s no money left on the card unless you add more funds. With a secured card, if you have a $500 credit limit because you made a $500 security deposit, you can spend $250 on an item, but you don’t have to pay it immediately at the time of purchase. Just like with an unsecured credit card, you can pay back a portion of that $250 charge each month until it’s paid off but you will also accrue interest for each month you carry a balance.
It’s important to know that if you have poor credit due to prior financial missteps, carrying a balance on your secured card is only likely to further hurt your score, as the APR on many secured cards are high. The best reason to own a secured card is because you want to show good payment habits and behaviors to the credit reporting agencies so you can improve your financial standing.
Who should get a secured credit card?
The main reason to own a secured card is to help repair or build your credit if you don’t qualify for an unsecured card—which is a typical credit card that allows you to charge up to a predetermined limit without depositing any money first as security. Secured cards, like unsecured cards, will charge you interest if you don’t pay your balance in full and on time every month. Because these cards are designed for those with little to no credit, the APR on a secured card generally are higher than those of unsecured cards. Use the new year as an opportunity to set realistic credit goals to unlock all the perks that come with a good credit score.
A secured card could be a good fit if:
- You are confident in your ability to pay your bill in full and on time every month.
- You plan to only charge what you can afford to pay back right away.
- Your goal in owning one is to improve your credit.
Pros and cons of secured credit cards
Pros
- A secured card lets you have a credit card for the times when a merchant doesn’t accept cash—like a hotel room or car rentals.
- With regular on-time payments, you can improve your credit score.
- Because you can typically only spend up to the amount of your security deposit, a secured card can help keep your spending in check.
Cons
- Some secured cards may charge fees for opening the account, which can impact the amount of available credit you have left to use.
- If you only qualify for a low limit on your secured card and you use the card too much, it can have a negative effect on your debt-to-available-credit ratio which can impact your score.
- If you have a secured card that won’t let you eventually graduate to an unsecured card, when your credit improves, you could be stuck with a card you no longer need.
- Many secured cards charge higher than average APR, which can further hurt those who have trouble paying their bills each month.
Things to consider before you apply
Even if a secured card may initially seem like a good fit for you, it’s important to know if the card reports to at least one of the credit reporting agencies. Without reports of good payment behavior to the credit bureaus, your credit standing won’t improve.
Maintain good payment habits, and eventually, you’ll be able to switch to an unsecured card. It’s a good idea to choose a secured card that will allow you to “graduate” to an unsecured card after a period of time. This means the issuer will let you switch your card to another one within their portfolio that doesn’t require a security deposit. This can be a big deal as it allows you to avoid two things that can ding your credit—applying for a new line of credit and closing a card you’ll no longer use.
How we chose our list of top secured credit cards
If you need a secured credit card, you’re probably focused on establishing or re-establishing credit. Making our choices for this category involves considering lots of factors, including the potential for building credit and also:
Annual fee
A lot of secured credit cards will charge cardholders an annual fee. Our analysis takes into account the overall value offered by the card, through rewards and other perks, against the annual fee to help you find the most value.
Surprise fees
Secured cards can sometimes have extra fees that you may not see on other credit cards. We pay close attention to the fine print so we can factor these fees into the overall scores and make sure you’re aware of them beforehand.
Rewards
Some secured cards offer rewards programs, such as cash back. Rewards can be complicated, but we make it simple with a breakdown that clearly shows the real value they offer to cardholders.
Extras and perks
Some cards have extra advantages for cardholders. Introductory offers and standard benefits, such as Discover’s Cashback Match for the first year and credit monitoring, are great perks.
Senior Editor Barry Bridges has been writing about credit cards, personal loans, mortgages and other personal finance products since 2017. Before joining Bankrate, he was an award-winning newspaper journalist in his native North Carolina. Send your questions about credit cards (and fantasy baseball) to bbridges@bankrate.com.
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