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Bad Credit? The Best Secured Credit Cards Reviewed

Anyone can end up with bad credit.

Whether the cause is mistakes made in college - an innocent mistake like forgetting a bill, or failing to pay back a loan used to cover a real emergency - it doesn't matter to the major credit bureaus.

Bad credit is bad credit and can seriously cramp your lifestyle or even deplete your savings if you're not careful.

More sly though is the slow-and-steady, long-term drain bad credit will exact on your potential income.

According to a credit debt calculator Kathy Kristof highlighted over at the CBS News MoneyWatch blog, "a 30-year-old with poor credit is likely to pay a quarter-million dollars more in interest payments over her lifetime (assuming an $18,000 car loan, $5,000 in credit card debts and a $400,000 mortgage) than a similar person with a pristine score."

One in three of Americans has subprime credit.

Few of us willingly identify with this person. But the fact is that one in three of us Americans has subprime credit (below 620), according to Value Penguin.

The good news is that at the same time, the average FICO credit score — 699 in 2016 — has never been higher since the credit bureaus started tracking the number.

If you have bad credit the first thing to remember is there's no time to waste. Bad credit is ruthless and will impact your wallet when the interest comes due next month, you need to rent a car to drive to your new job, or you start house hunting for your growing family.

There are tons of ways to rebuild your credit history. And I know it can get overwhelming fast trying to figure out the best way.

In terms of credit cards though, if you have a few extra hundred dollars in savings, there's no going wrong with a secured card. These cards are more often than not the safest and fastest bet to re-establish your credit.

The first three chapters are an overview of secured credit cards and the second three are a close-up look at a handful of specific cards that we think might be worth considering.

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1. The fundamentals of the secured credit card

The fundamentals of the secured credit card

A secured credit card is a smart choice for those trying to rebuild their credit. It works the same as any credit card with one significant difference: some type of collateral is required to "secure" or back the card before you're approved.

Think of this collateral like a security deposit a landlord requires before you can rent. The landlord is taking on risk allowing you to live in the home he or she owns, so the money-in-hand deposit mitigates that risk in case you break or damage any part of the home.

The same idea applies to secured credit cards. Because you have bad credit, issuers view you as a riskier bet to approve a credit line.

The deposit mitigates that risk for the issuer just in case you don't pay down your credit debt after all. Typically, the deposit amount will equal the credit limit granted.

How an unsecured credit card differs

How an unsecured credit card differs

On the other hand, an unsecured credit card is a conventional card that requires NO collateral. For this reason, unsecured cards are typically geared toward people with good, well-established credit.

That being said, unsecured cards for people with bad or no credit do exist. The problem is that typically such unsecured cards come with high-interest rates and hidden fees that paint them the black sheep of the group.

While these cards often offer more attractive rewards and perks than secured cards, it's essential you investigate the fine print before you apply.

In my and many experts' opinion, the more traditional route to re-establishing credit is your smartest course of action: opt for a secured card and once you build back your credit back up a bit, graduate to an unsecured card with better perks.

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2. Credit score requirements and benefits for secured cards

Credit score requirements and benefits for secured cards

Fundamentally, one of, if not the primary reason you should apply for a secured credit card is to help rebuild your credit.

That means understanding in detail the relationship between your score and your card is key to picking the right one.

Thankfully there's a wide variety of cards out there so no one size fits all. Even still, there are some basic credit requirements and benefits you should be aware of.

Requirements

Credit score requirements

Because credit card issuers require a deposit before approving you for a secured credit card, the credit score requirements are typically lower than normal.

Customer Quote 1

In fact, almost anyone can qualify, according to Jordan Wathen at The Motley Fool,

"[B]anks are willing and able to issue a secured card to just about anyone, even those who have little income or very subprime credit scores.

While bad credit histories and recent bankruptcies are likely to result in a denied unsecured credit card application, they're less likely to affect an application for a secured credit card."

That doesn't mean your credit score and income size don't matter though. Banks and the major credit bureaus will consider your deposit and creditworthiness when determining the size of the credit line you'll be approved for off the bat.

While you can grow this credit line over time (more on this in the next chapter), initially it's your financial background that counts.

Benefits

Benefits for secured cards

Rebuild, rebuild, rebuild! Credit cards don't directly create your credit history — at least not technically.

Your FICO score is calculated by the data your credit issuer passes along to the three major credit bureaus — Equifax, TransUnion, and Experian.

The trick to picking a great secured credit cards is choosing the correct credit limit for you (more on this in the next chapter) while minimizing your interest rate, or APR.

At the same time, simply using a secured credit card will not build back your credit. You have to use it efficiently. Practically, that means two things:

First, pay your bills on time.

Second, keep your credit utilization ratio — the amount you spend versus the line of credit you have — between 20 and 30%.

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If you follow those steps, Pat Curry, writing for bankrate.com, says, you can rest assured your card is working to rebuild your credit by keeping an eye on the mail.

Customer Quote 2

"If you start getting mailers offering you unsecured cards after you've made several months of payments on time, you'll know that the bank is reporting."

A great place to start is checking your credit scores through the three major credit bureaus — you can check each once a year for free! It's crucial you know your own credit history.

3. The ins-and-outs of the deposit

The ins-and-outs of the deposit

A secured credit card is a secured credit card because of the deposit. If all goes according to plan — that is, if you pay your bills on time — you will get your deposit back at the end of the card's term, which is typically a year.

That means picking the card with great deposit terms is pretty important since you won't be seeing that money for a while. Here are a few things to keep in mind:

How it affects your limit

How deposit affects your limit

The first thing to know about the deposit is that, typically, it's either directly proportional or a percentage of the credit line the issuer will grant you. That means if you deposit $50, your credit line will be $50 or slightly more; or if you deposit $400, your credit line will be $400 or slightly more.

Choosing a minimum or maximum

Choosing a minimum or maximum deposit

Minimum and maximum deposits vary from card to card. You can find cards with a minimum deposit as low as $50 and a maximum as high as $10,000. Generally speaking though, most card deposits range from $200-500.

The amount you can put down is different from the amount you should put down. The key is to keep in mind your own finances.

For instance, just because you might have 500$ in savings doesn't mean you should deposit all $500 to maximize your credit line. It's crucial you maintain (or start building now!) an emergency fund for when that inescapable calamity hits.

Otherwise, when you're hit with a $500 bill from the mechanic to replace an axle and tire, you might be forced to take out a risky payday loan or max out another credit card so you can make it to work tomorrow.

At that point, new debt with high interest will likely suck more and more of your income, and the hard work you've done to rebuild your credit will be negated.

Types of collateral

Types of collateral

For secured credit card deposits, cash is the collateral of choice.

Whereas for loans, many lenders will accept more creative types of collateral, because secured card deposits are typically only a few hundred dollars, cash is king.

That being said, if you have other types of collateral, it's best to check directly with the issuer to see if there's any flexibility.

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Cash in on some interest

Sometimes, an issuer will help you make some interest on your deposit while they're holding on to it. While the majority of cards won't offer this perk, it's something to keep an eye out for.

Jana Castanon, writing for the Consumer Credit Counseling Service of South Oregon, says that "[the interest] they offer you on your security deposit should be equivalent to the interest you would receive on a savings account."

Customer Quote 3

4. Five secured credit cards to consider that outshine the pack

Five secured credit cards to consider

There are dozens of secured credit cards out there. Without some shortcuts, you could very easily overwhelm yourself trying to juggle and compare the terms of a dozen different cards simultaneously.

While there are of course many more great cards to consider, the five credit card offers we've outlined below are a great place to start your research.

They're each from a different bank, recommended by a number of syndicated experts, and often are advertised as great ways to rebuild credit.

Discover it Secured Card

Discover it Secured Card

Annual fee. None

Deposit range (min-max). $200-500

APR. 23.99% (variable)

  • Perks of Discover it Secured Card

    Perks

  • Earn 2% cash back on food and gas up to $1,000 in combined purchases each quarter.
  • Earn 1% cash back on all your other purchases.
  • Earn $1 cash back for every dollar you spend in your first year, automatically.
  • Drawbacks of Discover it Secured Card

    Drawbacks

  • Pay a max late fee of $37.
  • The credit range is potentially limited if you're making more money than your credit lets on.

What experts say

Most syndicated review sites highly recommend the Discover IT secured card.

Customer Quote 4

J.R. Duren writing for highya.com says there are few if any cards as good for people with bad credit. "First, Discover's cash rewards and first-year matching can help you earn anywhere from $80 to $160 in your first year. Second, the card's absence of an annual fee is an anomaly in the world of secured credit cards."

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What consumers say

Annaaa, writing on creditkarma.com, outlined how she used the Discover it card to help rebuild her credit.

Customer Quote 5

"I applied for a $200 limit and was approved within 3 days and received the card in the mail within 7. When I first applied my credit score was at 513 and it is now at 721 within one month! I plan to keep it that way by only utilizing 30% or less and paying it off each month. Once i have the card a little longer I will be back to update my review by for now I give it 5 stars!"

How to apply. Head over to the Discover it website to apply and learn more.

Capital One Secured Mastercard

Capital One Secured Mastercard

Annual fee. $0

Deposit range (min-max). $49-200

APR. 24.99%

  • Perks of Capital One Secured Mastercard

    Perks

  • You are guaranteed an initial $200 credit line after making a security deposit of $49, $99, or $200, depending on your credit.
  • If you can't afford to put down the whole deposit upfront, you can pay it in multiple installments before activating your card.
  • Grow your credit limit if you make your first five payments on time.
  • Drawbacks of Capital One Secured Mastercard

    Drawbacks

  • Pay a max late fee of $35.
  • Even if you can make the deposit, without a checking or savings account you likely won't be approved.

What experts say

Beverly Harzog, writing for her personal finance blog, highlights the higher than normal APR of this secured Mastercard as a potential pitfall depending on how you use it.

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Customer Quote 6

"The Capital One Secured MasterCard isn't the best card out there when it comes to the APR, but it's an excellent secured credit card if you don't carry a balance. And Capital One doesn't charge foreign transaction fees on any of its cards, so if you're in a situation where you have bad (or very limited) credit and you need to travel overseas, this card can save you money."

What consumers say

Sandy11, from Seattle, WA, wrote about a good customer service experience she had.

Customer Quote 7

"Every time I call, I am wonderfully served and helped. My only problem is that when I go online, my password never works and I have to find a new one, and that is annoying!

How to apply. Head over to the Capital One website to apply.

Citi Secured MasterCard

Citi Secured MasterCard

Annual fee. $25

Deposit range (min-max). $200-5,000

APR. 21.99% (v)

  • Perks of Citi Secured MasterCard

    Perks

  • Enjoy complimentary insurance on car rentals charged to your card.
  • Benefit from zero-liability fraud protection.
  • Drawbacks of Citi Secured MasterCard

    Drawbacks

  • Pay a max late fee of $35.
  • If you've had a recorded bankruptcy in the past two years you'll automatically be denied.

What experts say

Customer Quote 8

Brian Martucci, writing for moneycrashers.com, points out that Citi rewards responsible payment behavior. "If you make timely payments for the duration, Citi may elect to return your deposit and allow you to continue using your card. Your payment and credit utilization patterns are automatically reported to all three consumer credit bureaus."

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What consumers say

moogie94, writing on creditkarma.com, said that she initially had some application difficulties but ultimately was accepted for this credit card offer.

Customer Quote 9

"I went with this card because the capital one card wouldn't approve me (collections from capital one 4 years ago) and the beginning was rough. They said my application will take further review and they will have an answer for me in 1 week. By day 4 the 200$ was taken out of my account."

How to apply. Head over to the Citi website to apply and learn more.

Wells Fargo Secured Card

Wells Fargo Secured Card

Annual fee. $25

Deposit range (min-max). $300-10,000

APR. 19.99%

  • Perks of Wells Fargo Secured Card

    Perks

  • If you're looking for a high credit limit, this card has little competition.
  • If you already bank with Wells Fargo and pay your credit card bill with your credit card, get $600 of protection against damage or theft.
  • Drawbacks of Wells Fargo Secured Card

    Drawbacks

  • Pay a max late fee of $37.
  • Get hit with a hard pull credit check when you apply.

What experts say

Karen Zimmermann, writing for walletpath.com, highlights the easy application process and low annual fee, but is irked by the deposit limitations.

Customer Quote 10

"Probably the most annoying thing about this card — aside from the lack of interest — is that you have to have a Wells Fargo checking or saving account to transfer the deposit out of. These accounts are easy and free to open, but it's still an extra hassle that we're pretty sure you don't need."

What consumers say

CC Deville, writing on creditcardforum.com, offered some intelligence on the graduation process to an unsecured card.

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Customer Quote 11

"I have heard that Wells Fargo reviews secured accounts for graduation in April and October. I have heard a lot of times that the unsecured credit line will be the same as the secured credit line. I have also seen people report that they had a $300 secured limit and after graduation, Wells Fargo upped it to $1,000. Basically, I wouldn't expect a huge increase when it becomes unsecured."

How to apply. Head over to the Wells Fargo website to apply and learn more.

OpenSky Secured Visa

OpenSky Secured Visa

Annual fee. $35

Deposit range (min-max). $200-3,000

APR. 18.39%

  • Perks of OpenSky Secured Visa

    Perks

  • There's no credit check to apply for this card, which makes it a great option for those with bad or no credit.
  • You can make your deposit and pay your bills with a debit card, check, or money order, which makes it a great option for those without bank accounts.
  • Drawbacks of OpenSky Secured Visa

    Drawbacks

  • Pay a max late fee of $27.
  • There's chatter amongst consumers that it's difficult to graduate to an unsecured card.

What experts say

Sarah Li Cain, writing for fast-bad-credit-loan.net, highly recommends the OpenSky Secured Visa for those trying to re-establish credit.

Customer Quote 12

"This card is designed for consumers who want to rebuild or create a credit history. OpenSky does not require a checking account or credit check when you apply, which makes the application process simple...With responsible use, you could see an increase in your credit score and move to an unsecured card."

What consumers say

Mark, writing for credit.com, emphasized the easy application process.

Customer Quote 13

"The process was easy and once I sent a money order to cover the security deposit, it only took a couple weeks for the money order to process and receive my card. I sent my first payment in on December 29th and they had posted it on January 5th. It will take a few more days to clear but for just getting the card I am satisfied. I will have to see how my score will go up. Paying the balance off prior to the end of the month when they report to the credit bureau will help."

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How to apply. Head over to the OpenSky website to apply (in 10 minutes they claim) and learn more.

6. The process, from application to approval

The process, from application to approval

The length of the application process depends on the card.

The first and most important thing to check is whether the issuer will do a "hard pull" of your credit history. Such a check will take longer than a quick "soft pull," and more importantly, slightly ding your credit score itself.

Typically though, once you're approved, the card should take around 7-14 business days to reach your doorstep, and often sooner!

If you want to learn more about secured and unsecured credit cards and how to (re)build your credit, then you'll love these articles:

  1. Guaranteed Approval Credit Cards for Bad Credit
  2. Best Unsecured Credit Cards for People With No Credit

Have you had a positive (or horrible?!?!) experience with a secured credit card? Let us know in the comments below.


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