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The Best Secured Credit Cards

Monday, June 27th

What Are the Best Secured Credit Cards?

Secured Cards are an excellent way for consumers with bad credit - or no credit history at all - to safely build a good credit score and learn solid money management techniques. While these cards come with low spending limits, most issuing banks are happy to provide a traditional credit card with higher limits once the secured card has been used responsibly for a few months.

If you don't have great credit - or if you've never had a credit card before - you might think that there's no way you can ever get a decent credit card. It feels like a paradox: you need a credit card to build a good credit history, but you can't get a credit card without a solid credit score. Guess what: there's a credit card that is perfect for your situation and that can help open doors of opportunity in the future. Allow us to introduce you to secured credit cards.

Secured Credit Cards: Bad Credit or No Credit Welcome!

You might be wondering why a bank would give a credit card to a person with a low credit score or with absolutely zero credit history. Here's the reason: a secured credit card is funded (or backed) with a cash deposit that you provide. That deposit "secures" the purchases you make with the card. So, if you deposit $200 into the issuing bank's account, you will have a credit limit of - you guessed it - $200. Try to spend more than that and your card will be declined (probably to your embarrassment!).

Because there's no risk to the issuing banks, secured cards are happily approved for people with even the lowest possible credit scores. You'll just need enough cash on hand to make that initial deposit.

That makes secured credit cards a very good choice for building a positive credit history. Whether you're trying to repair your credit over some less-than-wise financial decisions, or you're a new college student who needs to establish a credit history for the first time, a secured card can help as your purchases are usually reported to the 3 major credit bureaus.

Secured Credit Cards Can Lead to Traditional Credit Card Offers

Once you've used your secured card successfully for several months, many issuing banks will gladly offer you one of their traditional credit cards. You know, all the good stuff: higher credit limits, better terms, and perks like cash back rewards. You'll need to read the fine print to see if your secured card specifies how long you'll need to hold the secured card before you can be transitioned to a traditional credit card option.

And, remember, that assumes that you've used the secured card responsibly. Make your payments on time!

Pay Attention To The Terms Of Your Secured Card

Because secured cards are structured differently from other kinds of credit, there are several things to keep in mind.

First, be aware that your initial deposit is NOT used to pay off your monthly purchases. In other words, you still need to make payments every month! And, once you've hit your credit limit, you won't be able to use your card for more purchases until you send in a payment. If your credit limit is $200 and you spend a total of $200, then make a payment of $150, you'll be able to spend $150 once again.

Also, if you don't pay off your balance in full at the due date, you'll be charged interest fees. These fees usually range anywhere from 9.99% to as much as 27% APR, and your interest fees will count against your spending limit. Pay your balance in full whenever possible to avoid those hefty fees.

Finally, every secured card on the market has different terms. For example, one card might offer no annual fees and no late fees on your first late payment, while another card charges an annual fee of $39. You'll also want to consider how high you want your spending limit to be: one of the most popular secured cards lets you choose a deposit anywhere from $200 to $2,500, while a competitor card sets your max deposit at $200. Evaluate the spending you plan on doing with your secured card, in order to choose one that fits your potential purchasing habits.

TopConsumerReviews.com has partnered with Lending Tree to help you find the best Secured Credit Cards currently available. We hope this information will help you choose the right secured card for your financial goals and help you establish a great credit history!

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FAQ

A secured credit card is an option for people who don't qualify for a traditional credit card. It requires the consumer to make a deposit, usually as a transfer from their checking or savings, and the amount of that deposit is used to "secure" the card and set as the credit limit. Card users have to pay off their purchases each month: those payments aren't deducted from the deposit. Once the card holder has demonstrated a history of responsible use, usually 6 months to a year, the card issuer will return the deposit and possibly offer a higher limit on an unsecured card.
Definitely: these cards exist specifically for that type of situation. You can use a secured card to build up your credit history, so that later on you qualify for a traditional credit card. Using a secured credit card can also help you be eligible to rent an apartment or take out an auto loan, as you establish your financial trustworthiness.
It's a great way to build up your credit history, to qualify for a regular credit card later on. Plus, many transactions today require a credit card, secured or not: shopping online and renting a car, to name a couple. Think of a secured credit card as a stepping stone to better things!
That depends on the card you choose and how much you want to deposit. You can find secured cards with deposit limits as high as $3,000, but do you have that amount available to put down on the card? Your spending limit will more likely be what you can afford to part with temporarily, until your deposit is returned to you later on.
Definitely not. They're actually a very reliable way for people with no credit history or a bad credit score to build up their profile and enable themselves to qualify for more credit later in life. However, they're a lot more restrictive than a traditional credit card, so they still need to be used wisely.
Yes. You still need to pay your balance in full each month - not with your deposit but with "new" money - because you'll pay interest fees if you don't. Those fees can be as high as 30% APR, so it's in your best interests (no pun intended) to only use your card to buy what you know you can pay off completely at the end of the billing cycle.
Sometimes. There are secured credit cards with no annual fees, but you'll have to read the terms and conditions carefully to ensure that the one you're considering won't charge you to use it.
The approval (or rejection) should be instantaneous, once you hit the submit button for your online application. However, getting your deposit transferred to the card issuer can take a few business days. This isn't a process that can be done in a hurry, but it shouldn't take longer than a few weeks to get everything in place and your credit card in hand.

How a Secured Credit Card Can Help Rebuild Your Credit

If you've had some tough financial times you're probably experiencing a lot of hesitancy from creditors when it comes to approving your car or home loan application, a new credit card or even small business loan. Creditors want to see that you can spend responsibly and very importantly, that your monthly payments will show up on-time and as expected.

There are several ways to improve your credit but obtaining a secured credit card is one place to start. Here's why:

  • If your old credit cards have been closed, due to bankruptcy, poor spending or an erratic payment history, you'll have a hard time applying for a new one. Secured credit cards give almost anyone access to a Visa or MasterCard. The key to a secured credit card is a cash collateral deposit, typically the amount of credit you'll be granted, minus fees. However, once you've proven that you can spend responsibly, sometimes up to 12 to 18 months or less, these companies will upgrade the card to a more traditional line of credit. In turn, your new line of credit will appear on your credit history and will reflect positively.
  • Using your secured credit card wisely will improve your credit score and history as well as open doors to a better credit card in the future. One with fewer annual fees and a much lower interest rate. When you have one or more open credit cards, which reflect positive spending, it opens the door for additional creditors to lend for bigger ticket items.

Once you've obtained a secured credit card and a line of credit it's imperative you continue to prove your credit worthiness with the following steps:

  • Always, always, always make your monthly payment on time. Actually, shoot for at least a week before the due date to make sure any delays will not stop your payment from arriving on time. Making on-time minimum credit card payments consistently has a significant impact on your credit score and how future lenders will view your credit worthiness.
  • Don't exceed your credit limit even once. In fact, try to stay within a third of the available credit. Creditors are quick to report credit limit violations to the credit agencies and this will instantly stand out to future creditors. Utilizing only a portion of your available credit is most favorable. If at all possible, make attempts to pay off your balance each month to demonstrate responsible spending.

If you're working to improve your credit score start with a secured credit card and, from the start, make every effort to demonstrate responsible spending to earn and keep a line of credit. Payments must be sent early each month and avoid utilizing the full line of credit for best results.

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