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The old adage “You can’t build something from nothing” rings true in many areas of life. When it comes to credit, the statement can strike a big chord: if you have no credit, or your credit’s been damaged, how do you go about building it up? You can’t get credit with no credit, right?
Actually, you can — by way of a secured credit card.
What is a Secured Credit Card?
If you are looking to establish credit, build, or rebuild your credit then you may want to consider a secured card. A secured card is a credit card in which you are required to put down a security deposit which is held by the card issuer as collateral in the event you do not meet your financial obligations on the card.
Use the card regularly and responsibly, and (all else equal) over time you may find you qualify for an unsecured card, as long as you are also being responsible with any other credit cards and loans you have. Your security deposit will be returned to you, as long as your balance is paid in full and you don’t have any outstanding issues or obligations remaining on your card.
Two primary ways to handle your credit accounts responsibly is to make your payments on-time and by keeping your balances low in relation to your credit limits.
How Do Secured Credit Cards Work?
With an unsecured credit card, your card issuer grants you a limit to borrow from at will. The limit, and all of the other terms associated with the card depend on your creditworthiness and other factors.
With a secured card, on the other hand, you must make a cash deposit which is held by the card issuer. That deposit is usually (but not always) equal to the credit limit on the card. The deposit is held as collateral in case you default on your debt. You must still pay your bill each month. Your deposit is not applied to your balance due, unless you default on the debt on your card.
Your credit limit, then, is “secured” by the funds you deposit.
Apart from this difference, a secured credit card works like any other credit card. You make purchases or cash advances with the card and then you are required to pay the balance due. If you make on-time payments and keep your balance low (no more than 30%, and preferably less than 10%) relative to your credit limit, use of a secured card can be a tool to help you improve your credit score and overall credit standing over time. Remember it is up to you to handle your credit obligations responsibly.
If you want to increase your credit limit, you can usually just deposit more money into the collateral account. In some cases, the issuer may agree to a limit increase without additional security funds if you have demonstrated consistent responsible card use for a period of time (usually six to twelve months).
Cardmembers may find that after about a year of responsible secured card use, they may qualify for an unsecured card. In fact, some secured card issuers automatically review your credit accounts after a period of time to see whether you are eligible for conversion to an unsecured account.
When your account is converted to unsecured, or you decide to close it for any other reason, you can get your security deposit back, as long as your balance is paid in full and you don’t have any outstanding issues or obligations remaining on your card.
If you look around and compare offers you may find some secured credit cards can be more than just a no-frills credit builder. Take a look at our top picks that offer some perks and benefits that may interest you.
Best for Low Deposit: Capital One® Secured Mastercard®
Annual fee: $0
A simple, straightforward card for building or rebuilding credit, Capital One® Secured Mastercard® may interest people with bad credit, limited or no credit history, perhaps even eligible students looking to establish credit, or anyone who needs a card designed for credit building.
With the Capital One® Secured Mastercard® if you make the minimum required security deposit you’ll get an initial credit line of $200. Plus, deposit more money before your account opens to get a higher credit line. If you make your first five monthly payments on time, you can access a higher credit line with no additional deposit needed. Access to an authorized bank account is required to make your $49, $99 or $200 refundable security deposit. Annual fee on this card is $0.
Capital One® Secured Mastercard® features we want to mention:
- Make the minimum required security deposit and you’ll get an initial credit line of $200 – deposit more money before your account opens to get a higher credit line
- Access to an authorized bank account is required to make your refundable security deposit of $49, $99 or $200
- Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
- $0 annual fee
- No foreign transaction fee
If you’re interested in the Capital One® Secured Mastercard® click on the below “Learn More” link which will take you to a card details page with more information.
Learn more about Capital One® Secured Mastercard®.
Best for Rewards: Discover it® Secured
Annual fee: $0
It’s rare to see a rewards-based secured credit card, since points, cash back and travel miles are usually reserved for individuals with good to excellent credit who qualify for unsecured credit card products.
The Discover it® Secured card is a rare exception that offers cardmembers cash back rewards – earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically. As an introductory offer Discover automatically matches all the cash back you’ve earned at the end of your first year – for new cardmembers only.
Deposit requirements and fees are also kind to the credit-building consumer on the Discover it® Secured card. Establish your credit line with your tax return by providing a refundable security deposit of at least $200 after being approved. Be prepared, when submitting your security deposit you will need to provide your bank information at the same time. This card has no annual fee and no foreign transaction fee.
Discover has automatic reviews starting at 8 months to see if they can transition you to an unsecured line of credit and return your deposit. These reviews are across all your credit cards and loans, including your Discover account as well as other accounts. So, keep in mind, that it’s up to you to manage your accounts responsibly. Demonstrate consistent, responsible credit management by making all your payments on-time as well as keeping your balance low in relation to your credit limit.
Discover it® Secured features we want to mention:
- Rewards driven credit card – earn 2% cash back at Gas Stations and Restaurants on up to $1,000 in combined purchases each quarter. Plus, earn unlimited 1% cash back on all other purchases – automatically.
- There is an introductory offer: Discover will automatically match all the cash back you’ve earned at the end of your first year, for new cardmembers only.
- $0 annual fee
- No foreign transaction fee
Best for Bad Credit or No Credit: OpenSky® Secured Visa® Credit Card
Annual fee: $35
For individuals with bad or no credit the OpenSky® Secured Visa® Credit Card may be a card worth a closer look, there’s no credit check necessary to apply. The security deposit you provide becomes your credit line limit on your Visa® card. Choose it yourself, from as low as $200. The security deposit is refundable and your Pledged Deposit Account will be closed once you satisfy in full all your account obligations under the agreement.
Your account activity is reported to all three major credit bureaus which will help document your credit card activity. With responsible credit card management by you, this can help build your credit and creditworthiness.
The OpenSky® card comes with a $35 annual fee and a foreign transaction fee of 3% of each transaction in U.S. dollars.
OpenSky® Secured Visa® Credit Card features we want to mention:
- No credit check necessary to apply
- Credit lines ranging from as low as $200 up to $3,000 secured by a refundable security deposit provided by you
- Reports to all three major credit bureaus
- $35 annual fee
- Foreign transaction fee of 3% of each transaction in U.S. dollars
If you’re interested in the OpenSky® Secured Visa® Credit Card click on the below “Learn More” link which will take you to a card details page with more information.
Learn more about OpenSky® Secured Visa® Credit Card.
Honorable Mention of Secured Credit Cards
Check out some of these credit-minded choices:
BankAmericard® Secured Credit Card
Annual fee: $0
For the BankAmericard® Secured credit card, the required minimum refundable security deposit provided by you is $300 with a maximum of $4,900, and your maximum credit limit will be determined by your income, ability to pay the credit line established and the amount of the security deposit you provide. If you provide a deposit exceeding the calculated maximum amount based on your ability to pay, the difference will be returned to you in the form of a check.
Your BankAmericard® Secured credit card account will be reviewed periodically. Based on your overall credit history, including your account with Bank of America as well as other credit cards and loans, and if you have demonstrated positive, responsible Account activity, you could qualify to have your security deposit returned to you.
U.S. Bank Secured Visa® Card
Annual fee: $29
Billed as the card to establish credit, the U.S. Bank Secured Visa® Card is for individuals who want to better their credit score with responsible use. U.S. Bank offers Auto Pay, which may help you avoid interest and late fees with automatic payments that put you in control. Auto Pay may also help you pay down a balance faster.
What is the Difference between a Secured and Unsecured Credit Card?
A secured card, as we’ve mentioned, requires a security deposit made by you and held by the credit card issuer. Without it, the card issuer will not extend credit to you. An unsecured card, however, is acquired by virtue of your creditworthiness, your credit score and other factors; the card issuer extends credit with no collateral on your part.
As far as a secured card, even if your credit limit is greater than the amount of your deposit, a secured card is not considered to be unsecured. If your credit is good enough to qualify for a limit greater than your deposit, however, you will have greater purchasing power in your wallet.
In conclusion, choosing a credit card is an important decision so compare offers, review the terms and conditions and find one that best suits your needs.
Independent Review Disclosure: All the information about Capital One® Secured Mastercard®, Discover it® Secured, BankAmericard® Secured credit card, and the U.S. Bank Secured Visa® Card have been collected independently by CreditSesame.com and have not been reviewed or provided by the issuers of these cards. The Capital One® Secured Mastercard®, Discover it® Secured, BankAmericard® Secured credit card, and the U.S. Bank Secured Visa® Card are not available through CreditSesame.com.
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