If you've never heard the term "secured credit card," perhaps you just haven't had any reason to think about it until now.
But if your credit rating has slipped to fair or even bad credit - or you're just starting out in life and have no credit yet - some lenders may be suggesting that you get one.
How secured credit cards work
The details are down further but, in a nutshell, here's how it goes:
- You put down a refundable deposit.
- A credit card issuer offers you a credit card that, other than the name "secured," works like any other credit card.
- You'll make monthly payments, be charged interest and all that jazz. You can even get a cash advance (although that's a costly maneuver you should actually avoid).
What's the best thing about a secured credit card?
Secured credit cards are excellent tools for building credit - and if all goes well, once you've used one successfully (often for about a year or two), you'll be able to get your money back and successfully apply for an unsecured credit card.
Is there any reason not to get a secured credit card?
For the most part, no - unless you really are struggling financially and feel things aren't going to go well even if you do get one.
But there is reason to be cautious.
Some secured credit cards are riddled with fees and may not be worth your time. So you'll want to do your research before applying to a secured credit card.
Side-by-Side Comparison of Our Picks
|Secured Credit Card||Security Deposit Minimum||Annual Fee||Purchase APR||Late Payment Fee||Credit Score Needed|
|Citi® Secured Mastercard®||$200||$0||22.49% (Variable)||Up to $40||Limited History/No Credit/ New-to-Credit/ Good|
|OpenSky® Secured Visa® Credit Card||$200||$35||18.89% (Variable)||Up to $38||Fair/Poor/Bad/No Credit|
Best Secured Credit Card to Get Low Fees
Best Secured Credit Card with Low APR and No Annual Fee - Citi® Secured Mastercard®
Nobody wants a high APR. Sure, ideally, you pay off your credit card - secured or not - every month so you don't have to deal with an APR. But if you are going to carry revolving credit, a high APR can make things much worse.
There is a secured credit card on this list with a much smaller APR that is worth considering -- the OpenSky® Secured Visa® Credit Card has an 18.99% APR (it also has a $35 annual fee). But if you're looking for a secured credit card with no annual fee and a fairly low APR in case you do fall behind on payments, the Citi® Secured Mastercard® is probably your best bet.
Citi® Secured Mastercard®
The Basics: For a secured credit card, Citi® Secured Mastercard® offers a pretty low APR. Just make sure you pay on time; otherwise, the APR may go up substantially.
But there are other features about the Citi® Secured Mastercard® to consider. You can get a fairly high credit limit once you've been approved. That said, the minimum security deposit you have to be willing to put down is $200, and then your credit limit will be $200.
Also… um… did we mention that there's no annual fee? Yes, we did, didn't we? Well, this isn't a flashy card. It's good for building credit, but there are admittedly not many bells and whistles.
Maybe a bell or a whistle, though. It does offer free FICO score access and fraud protection, as well as help if you become a victim of identity theft.
Security Deposit: A security deposit is required (minimum is $200). But once it has been approved, your credit limit is equal to your deposit.
Purchase APR: It's 22.49% (Variable). Just make sure you pay on time; otherwise, the 22.49% (Variable) may go up.
Annual Fee: $0
Late Payment Fee: Up to $40
Cash Advance Fee: 5% of each cash advance; $10 minimum
Rewards: None - This card is strictly for building credit
Credit Score Needed: Limited History/No Credit/ New-to-Credit/ Good
Building credit with the Citi® Secured Mastercard®
The Citi® Secured Mastercard® does its part to help cardmembers build a solid credit history. Like other secured credit cards, the Citi® Secured Mastercard® reports to all three credit bureaus.
Plus it offers auto pay and account alerts to help you stay on track where it counts. For added convenience, you can also manage your account online, in their mobile app, and by phone too.
The Citi® Secured Mastercard® requires a $200 minimum security deposit. But if you demonstrate responsible credit card usage over time, there is the possibility Citi would increase your credit limit to as much as $5,000. Keep in mind that would mean you increased your security deposit as well.
Comparing the Citi® Secured Mastercard®
- The APR is currently 22.49% (Variable), which is middle of the pack - and a total non-issue if you pay your balance off every month.
- At 5% of each cash advance; $10 minimum, the Citi® Secured Mastercard®'s cash advance fee is more expensive than the CapOne-CashAdvance Fee. But that is of little consequence if you don't take a cash advance.
- Citi® Secured Mastercard®'s late payment fee of up to $40 is one of the more likely fees about which to be concerned. However, Citi offers a number of ways to prevent that, including auto pay and account alerts.
Best Secured Credit Card for Getting Approval - OpenSky® Secured Visa® Credit Card
Some have more difficulty getting approved for a credit card than others. If you're worried about being rejected for a credit card, the OpenSky® Secured Visa® Credit Card is a good card to apply for.
There is no credit check.
If you're 18 years old or over, and if you have a social security number and can offer a refundable security deposit of $200, you should be able to get the OpenSky® Secured Visa® Credit Card.
OpenSky® Secured Visa® Credit Card
The Basics: Like the others on this list, this is a pretty standard, no-frills secured credit card. Most secured credit cards in general are no-frills; it's generally about building, or rebuilding, credit.
However, there are good reasons to consider the OpenSky® Secured Visa® Credit Card.
If you don't mind the $35 annual fee, you'll appreciate the low APR.
Security Deposit:You can get a credit line from $200 - $3,000 based on the amount of your security deposit
Purchase APR: 18.89% (Variable)
Annual Fee: $35
Late Payment Fee: Up to $38
Cash Advance Fee: 5%
Rewards: None - This card is strictly for building credit
Credit Score Needed: Fair/Poor/Bad/No Credit
Building credit with the OpenSky® Secured Visa® Credit Card
The OpenSky® Secured Visa® Credit Card reports to the three main credit card bureaus like other secured credit cards. But the main advantage to the OpenSky® Secured Visa® Credit Card is that getting approved doesn't require a credit check.
As noted, if you're going to get a secured credit card, you really want to make sure you're paying it off every month and not carrying revolving credit card debt.
Carrying a balance from month to month won't help you build credit. Sure, you may see your credit score climb even if you're carrying some revolving credit, if you're making on-time minimum monthly payments. But you can build credit faster and see that score go up higher if you pay the entire bill off every month.
Comparing the OpenSky® Secured Visa® Credit Card
- If you're okay with paying OpenSky's $35 annual fee, your APR will be less than the 22.49% (Variable) charged by Citi® Secured Mastercard® and significantly less than Capital One® Secured Mastercard®'s APR of 26.99% (Variable).
- Something else to consider: If you have $3,000 available, you can put that down as your refundable deposit (or anything between $200 to $3,000). That's a plus, if you feel that having a credit card with, say, $200 on it is kind of restrictive. (Of course, if you've had trouble paying off credit cards in the past, you might feel that $200 is the perfect starting point.)
- You'll also want to take note that, if you are accepted to the OpenSky® Secured Visa® Credit Card and you somehow stop using the card, and 12 months go by, you'll be charged a monthly $10 inactive account fee until you start using it again -- or close the account.
What is a Secured Credit Card and How Does It Work?
As noted, secured credit cards are for people with bad credit or perhaps fair credit. If you've struggled to qualify for a credit card, then a secured credit card may be the one kind of credit card that you can easily get.
And you should think about applying for a secured credit card if you don't have a credit card and have been rejected by issuers in the past.
One of the big selling points of a secured credit card is that using one can help you build credit - which means that eventually you can apply for an unsecured credit card.
Secured vs. unsecured credit cards
So what's the difference between a secured credit card and an unsecured credit card?
The main distinction is that, with a secured credit card, you have to give money to the credit card company to hold; with an unsecured credit card, you don't.
And why are you giving money to the credit card?
How secured credit cards work
Well, secured credit cards work this way: You give a certain amount of money to a credit card company. It might be $200. It might be $2,000. You're then given a secured credit card to use - and it functions just like any other credit card.
But let's look more closely at the differences. Here's an example:
Say you give Credit Card Company X $1,000, you receive your new credit card, and start using it. After a few months, you've spent about $800 on the credit card - but something happens, you stop making payments and, well, it just doesn't work out.
If you part ways with the card and ghost the issuer, well, the credit card company can then keep your $1,000. That way they aren't out any money. The credit card was secured by your initial deposit.
On the plus side, you may not be out much money either, since you gave them $1,000 and, in this hypothetical, bought $800 worth of stuff.
But this would be a serious setback on the road to rebuilding your credit.
How secured credit cards help build credit
Now, optimistically speaking, if things go well and you use the secured credit without any problems, after a certain amount of time, the secured credit card may give you a higher available credit (without your having to fork over more money).
Then often after a year or two, the company that gave you the secured credit card may switch you to an unsecured credit card - and you'll receive your refundable deposit back.
Pro Tip: Incidentally, if you think you're going to carry any balance on a secured credit card - and it's so much better for your finances if you don't - then pay attention to the APR, or annual percentage rate.
That's the interest that you'll be charged on whatever you buy.
In general, the longer you take to pay something off, the more expensive your loan. If you pay off your secured credit card (or any credit card) every month, you won't pay any interest - and you're getting an interest-free loan each month.
Of course, if you're paying an annual fee each year, you're not quite getting a loan for free every month. But that doesn't mean the annual fee isn't worth it. For instance, if you think you'll be rejected for a secured credit card and you really want one, paying OpenSky Secured Visa's $35 annual fee and not having to do a credit check may be well worth it to you.
How to Choose and Use Your Secured Credit Card
So if you're convinced you should get a secured credit card, you'll want to decide how to choose one - and you'll do yourself a favor if you don't just apply for the first one you see. They all have their advantages and disadvantages.
For instance, you might feel like it's worth it to pay $35 to OpenSky Secured Visa and avoid a credit check.
On the other hand, it is an annual fee. If it takes two years to rebuild your credit, then you're out $70.
Again, that may not bother you in the least, especially if you like the fact that you can put $3,000 on the secured credit card and have a lot of available credit. But it's worth considering.
Security deposit requirements
If your credit isn't that bad, you might feel it's worth migrating to the Citi® Secured Mastercard®.
If your credit passes muster with them, you may be able to put down only $49 to have a credit limit of $200. That's an advantage you might appreciate - being able to put down a fairly small amount and then getting an available credit limit of four times your initial deposit.
In other words, everybody's going to have their own opinions on what makes a secured credit card a good or bad fit for them, and so you want to do more than just take a glance when considering which one to get.
How to decide
So if you're planning on getting a secured credit card, here are some things to consider.
What's your goal?
Do you want to rebuild your credit - or establish some credit?
Do you want to have a credit card so you can rent a car more easily? (Some rental car establishments make it a little harder for consumers to rent a car if they're using a debit card.)
Is the timing right?
If you have been struggling with your finances for some time, and you're still struggling, this may not be a good time to get a secured credit card.
You do have to give some of your money to the credit card company (which will be refunded, eventually), after all. Maybe you should wait until your finances are more stable.
Benefits of secured credit cards.
Well, as noted, you can rebuild your credit, if you have years of financial struggles behind you and you're new to credit cards, secured credit cards can be an effective way to establish credit.
That said, if you're, say, a college student with no bad credit history in your past, you might want to consider a student credit card.
If you've just got a new, well-paying job but have no credit history, it might be worth looking at conventional credit cards. You may not have trouble applying for one. Everybody's financial situation is different, though, and so it's hard to say.
Drawbacks of secured credit cards.
You can get in trouble with secured credit cards just as you can with a regular unsecured credit card.
They can be an excellent tool for repairing your credit, but if you're living paycheck to paycheck and having trouble paying monthly bills, a secured credit card may not be a good idea.
Features of secured credit cards
Is there an annual fee? That might not be a serious drawback if you feel the card has some pluses, but you do want to ask yourself if it's worth it.
Are there annoying fees, in general? Are there any perks?
Generally speaking, most secured credit cards don't have any - but the Citi® Secured Mastercard® offers free FICO score access and assistance if you become a victim of identity theft; whereas, Capital One® Secured Mastercard® has some free extras such as car rental insurance, travel accident insurance, price protection and 24-hour roadside assistance.
If you're choosing between two cards, if one card has some slightly better perks, that may make the choice for you.
Strategy: The Fastest Route to Building Credit
So if you're convinced you need a secured credit card and you feel like you know what you need to look for in a secured credit card, you might be thinking, "What's my fastest route to building credit?"
Unfortunately, building credit takes time. So keep in mind that, even if you're doing everything right, you need to keep doing everything right for months before you're going to see any real difference.
You might see your score climb within a month or two, but keeping your expectations in check for at least six months is more realistic.
Of course, how fast your credit score improves and by how much depends on numerous factors, including how deep a hole you were in and how actively you're borrowing money - and paying it back.
Bottom-line, though - if you're trying to fix a long patch of financial errors, a secured credit card can help you reach a robust, healthy credit score. It's just that it doesn't happen overnight.
So what, specifically, should you be trying to do? Here's what to do:
Checklist for building credit fast
1. Pay your bills on time.
Obviously, pay your secured credit card bill on time. Even one day late can be bad news.
Your credit score won't drop if you pay a day or two late (in fact, federal law states you have 30 days before a late bill can be reported to a credit bureau); but you will get late fees - not just from your secured credit card, but your electric bill, your car payment and so on.
Late fees, whether it's your credit card or cell phone bill, equal less money overall, and less money overall makes it more likely that you're going to have trouble paying your bills on time. And then eventually you may start being more than 30 days' past due.
But a late fee with a credit card can be especially harsh since your APR could be raised.
2. Keep your credit utilization ratio, also known as a credit utilization rate, under 30 percent.
Lenders like it when people use no more than 30% of their available credit.
So if you have a credit limit of $200, as you might with the Citi® Secured Mastercard® or Capital One® Secured Mastercard®, that means you shouldn't put more than $60 on the card at one time.
That may come as a surprise. You might think, "What the heck? You're giving me available credit up to $200, but you'll look down on me if I take out $100?" Why should anyone care if you take out $200 as long as you pay it back within a month?
It's a bit difficult to disagree with that logic. But if you want to improve your credit, you'll keep your credit utilization ratio to 30% or less.
3. Check your credit report periodically.
You might know that you have a spotty credit history, and that all of those late and missed payments - those aren't errors. But at the same time, there may be some actual mistakes among your credit report. You owe it to yourself to check out your report every once in awhile, and it's free to do.
And if you do find an error? Dispute it.
If you can demonstrate that some loan out there isn't yours, but perhaps another borrower with your same name (a study last year by the Federal Trade Commission found that one out of five borrowers have an error on at least one report), you could get it removed - and see your credit score climb. Maybe it won't shoot up more than a few points; maybe it'll climb 30. It depends what the mistake is.
Pro Tip: Federal law makes it possible for everybody to get a free credit report from each of the three major credit bureaus - Experian, Equifax and TransUnion - once a year.
If you request a report every four months, from a different bureau every time, you could, in theory, be checking on one report for free every four months indefinitely.
Credit Score You Need for a Secured Credit Card
The good news is that you don't need a high credit score for secured credit cards.
You may need to have higher than the basement floor of a score for some secured credit cards; but others, like OpenSky® Secured Visa® Credit Card, may not even check your credit.
Credit scores are generally from 300 to 850 (and so 300 would be that basement floor). A fair credit score is usually considered 580 to 669.
You may want to try for a secured credit card if you're at the bottom of a fair credit score range, but you may be able to get an unsecured credit card even if you have a 580. If you have less than a 580, you can certainly apply for unsecured credit cards; but if you get turned down, then definitely a secured credit card is the way to go.
That is, especially if you want to rebuild your credit. If your credit score is in what's considered poor condition (300 to 579), secured credit cards can be excellent tools for rebuilding credit.
While not a complete list of all the secured credit cards available, our study looks at popular secured credit cards and selects the best of those cards. It is a subjective study, but we picked secured credit cards that are less likely to get people into financial trouble and, therefore, more likely to help them build credit.
People can get into trouble with any credit card, of course, if they misuse it. But the Citi® Secured Mastercard®, Capital One® Secured Mastercard® and OpenSky® Secured Visa® Credit Card are three straightforward secured credit cards that should help cardholders looking to rebuild their credit.