Credit Cards

What Are the Best Secured Credit Cards? Complete Guide

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If you’re currently in a position where your credit score is less than ideal – or you simply have no credit profile at all, then you will likely find that you struggle to obtain credit-based products.

Whether it’s loans, credit cards, lines of credit or applying for your first ever mortgage – lenders are super reluctant to touch consumers with bad credit.

With that being said, there is a simple solution that can see you rebuild your adverse credit profile. By obtaining a secured credit card – which is a type of credit card that only permits a credit limit that is less or equal to the amount you put up as a security deposit, you stand a very good chance of improving your FICO score.

If this sounds like something you are keen to explore further, then we would suggest reading our ultimate guide on secured credit cards.

Not only will we explain what a secured credit card actually is, but we’ll also guide you through the process that you will need to undertake to improve your credit score and also make our recommendations for the best cards currently on the market.

Best Secured Credit Card

If you’re now on the hunt for the best secured credit card currently in the US marketplace, we’ve listed the top six leading cards below.

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Citi® Secured Mastercard®

Backed by major financial institution Citi, its Secured MasterCard was designed exclusively for US consumers that are looking to rebuild their less than ideal credit profile. First and foremost, the card doesn’t come with any cashback or reward programs, although this is industry standard for a card of this nature.

Nevertheless, the card does not come with any annual fees either, and you won’t be charged anything to make an application. When it comes to your credit limit, this will be matched like-for-like with the size of the security deposit that you put up. Take note, this stands at a minimum of $200.

In terms of your repayments, the Citi Secured MasterCard allows you to set your own repayment date, which is great if you receive your salary on a specific date during the month.

Moreover, the card also facilitates AutoPay, which subsequently allows you to set-up an electronic debit agreement via your checking account. We also like the fact that you will receive ongoing alerts with regards to your account activity, which helps keep on top of payments.

When you do make your repayments, this will be reported to the main three credit bureaus. Furthermore, you will have free access to your FICO credit score via the Citi Secured MasterCard platform, so you can keep regular tabs on your progress.

The Citi Secured MasterCard comes with a fixed APR of 24.24%, which is super expensive. As such, this should act as further motivation to clear your balance in full every month.

Capital One® Secured Mastercard®

Also backed by a US heavyweight institution, the Capital One Secured Mastercard is a notable option to consider. Firstly, the card comes with a minimum FICO score requirement of 300, meaning that although the provider will run a credit check, as long as you have some sort of a profile you are likely to be accepted.

In terms of your credit limit, all new applicants will automatically start with a limit of just $200. You will, of course, need to put up a security deposit of $200 to get this. With such a low initial limit, this particular card will only be suitable if you don’t have the financial means to put up a larger credit limit.

Although making monthly repayments of $200 will still go in your favour, it won’t be as effective as a more substantive credit rebuilding plan that consists of higher amounts.

Nevertheless, the good news is that after making 5 monthly on-time payments in full, the Capital One Secured MasterCard will likely give you access to a higher credit limit. Moreover – if you do get a higher limit, you won’t be required to put up an additional security deposit. Once again, this is ideal if you are unable to cover a higher deposit.

In terms of the fundamentals, the card comes with an interest rate of 26.99% APR, which is even higher than the Citi Secured MasterCard. As such, just make sure that you avoid incurring interest by always paying your balance in full.

Although – as expected, the Capital One Secured Credit Card does not come with any rewards or cashback, it does come with the benefit of zero foreign transaction fees. This is great if you are travelling overseas, as you can continue with your credit rebuilding endeavours even when you’re outside of the US! Finally, the card does not come with any annual fees.

OpenSky® Secured Visa® Credit Card

The next secured credit card provider on our list is that of OpenSky. In a nutshell, the OpenSky Secured Visa Credit Card is potentially the easiest secured card to obtain, not least because the provider does not execute any credit checks. Moreover, you are not required to have a valid checking account either, so as long as you can verify your identity, you should be approved.

If you are approved, your credit limit will be matched by the size of your security deposit. Take note, this will need to be at least $200. You also have the option of applying for a higher credit limit via your online account portal. If accepted, you will then need to transfer an additional security deposit to cover the increased limit.

As per OpenSky themselves, the platform claims that 99% of customers that initially started without a credit score managed to obtain one within 6 months of getting the card. This illustrates just how effective a sensible credit rebuilding plan can be in such a small amount of time. What we also like about the OpenSky Secured Visa Credit Card is that the platform provides ongoing educational tips on how to successfully improve your credit score over time.

When it comes to the financials, the card provider does, unfortunately, charge an annual fee of $35. However, in the grand scheme of things, this isn’t too bad when you consider just how much of an impact 12 months of repayments could make to your credit score. The card also comes with a variable interest rate of 19.14%, which is actually quite competitive. However, if you are making your repayments in full every month, this is somewhat irrelevant.

First Progress Platinum Elite Mastercard® Secured Credit Card

Much like in the case of the OpenSky Secured Visa Credit Card, the First Progress Platinum Elite Mastercard also comes with one of the highest approval rates, as the provider does not check your credit history, nor does it have a minimum credit score requirement. As such, not only is the card ideal for those with bad credit, but those with no credit, too.

Moving on, the card offers excellent flexibility with your initial credit limit, as this ranges from just $200, all the way up to $2,000. This is great if you are looking to put all of your monthly expenses on the card. Take note, you will, of course, need to put a like-for-like security deposit up.

When it comes to making payments, the team at First Progress will report all payments to the main three credit bureaus, doing so on a monthly basis. On the flip side, the secured credit card does come with an annual fee of $29. Once again, this shouldn’t deter you from obtaining the card if you are serious about improving your credit score in the long-run. In terms of the interest rate, this stands at a variable APR of 20.24%.

Read our full review of the First Progress Credit Card.

Green Dot primor® Mastercard® Gold Secured Credit Card

The Green Dot Primor MasterCard Gold Secured Credit Card offers one of the highest credit limits we have ever seen in this particular space. With limits starting at just $200, this goes all the way up to $5,000. As is the case with all other secured credit cards, your credit limit will match the size of your security deposit.

Although a limit of $5,000 will work wonders in your quest to rebuild your credit, this is a hefty amount to have up as a security deposit, so only do it if you can afford to keep the money locked-up. The card does not come with a minimum credit score requirement, so it is also useful for those without a credit profile to date.

We also like the fact that the Green Dot Primor Mastercard comes with a super low APR of 9.99% Although it is hoped that this won’t come into play, it is notable that the APR is low, should you be unable to clear your balance at the end of the month. All of your repayments will be reported to the main three credit bureaus, which is typically done once per month. Finally, you will need to pay an annual fee of $49, so do bear this in mind.

First Progress Platinum Select Mastercard® Secured Credit Card

Although we have already reviewed First Progress, the US institution actually offers three secured credit cards in total. In the case of the ‘Select’ MasterCard, the only difference to that of the ‘Elite’ card is the size of APR and the annual fee.

While the Elite card comes with an APR of 20.24% and an annual fee of $29, the Select card comes with an APR of 14.24% and a fee of $39. As such, you will benefit from a lower APR if you are prepared to pay $10 per year more in annual fees.

Is it worth it? Well, we would say no. The reason for this is that unless you are confident that you are going to clear your monthly balance in full every month, then you shouldn’t be taking out a secured credit card anyway. If you do achieve this goal, then you won’t pay any interest, and thus, you are best off paying a slightly lower annual fee!

Other than this, everything else remains constant with the First Progress Elite Select Mastercard discussed above.

Read our full review of the First Progress Credit Card.

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Secured Credit Card

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What is a Secured Credit Card?

In a nutshell, a secured credit card is a type of credit card that is aimed at those with a less than ideal credit profile – or no credit profile at all. The reason for this is that borrowers are required to put up a security deposit in order to be eligible. In the vast majority of cases, this security deposit will then represent the available credit limit attached to the card. For example, if you put up a $500 security deposit, then your credit limit would also be $500.

In this sense, a secured credit card operates in a very similar nature to that of a debit card, insofar that you can only spend what you have held as a security deposit. In terms of usage, the secured credit card will be provided by a US-based financial institution and issued by the likes of Visa or Mastercard. As such, you can use the card in the same way as any other credit card by purchasing goods and services online or in-store.

The overarching reason for obtaining a secured credit card is to engage in a medium-term credit-building strategy. As we will discuss in more detail further down, this will involve making purchases on the card, and then repaying the balance in full each and every month. In doing so, the underlying card provider will then report your repayment performances to the main three credit agencies. In theory, this will then have the desired result of improving your FICO credit score.

Here’s a quick breakdown of how the credit repair process typically works with a secured credit card.

  1. You are approved for a secured credit card.
  2. You place a security deposit of $750 on the card.
  3. Throughout the month of November, you spend $500 on gas – all of which you pay for with your secured credit card.
  4. When you receive your statement, you owe $500.
  5. You pay the statement off in full, subsequently taking your outstanding balance to $0, and your available limit back to $750.
  6. The credit card provider reports the above payment to the three main credit rating agencies.
  7. You repeat the above process every month for one year, resulting in an improved FICO score.

So now that you know what a secured credit card actually is, in the next section of our guide we are going to explore who the card might be suitable for.

Who is a secured credit card suitable for?

It is important to note that secured credit cards are only suitable for a very niche segment of the US consumer space. In fact, unless you have bad credit or no credit at all, then there would be no point in obtaining a secured credit card.

The reason for this is that the actual process of building your credit (i.e. making purchases and clearing the balance every month) can be achieved with any credit card.

However, other credit cards – especially those aimed at consumers with at least a ‘Good’ credit score, will come with much more favorable terms. For example, a credit repair exercise would be highly conducive when using a credit card that comes with cashback. This is because you will be able to receive ongoing rewards on your purchases while at the same time achieving your credit building goals.

With that being said – it is somewhat ‘Catch 22’ when you have bad credit, as you can’t obtain additional credit to then rebuild your credit score.

That’s where secured credit cards come in.

Regardless of how good or bad your credit score is, the vast majority of applications are approved. The reason for this is that the secured credit card company in question is taking on virtually no risk.

This is because you will never be able to spend more than what you have put up as a security deposit. For example, if your security deposit is $200 and you try to make a purchase for $201, the transaction will be declined by the card issuer. As such, the only way that your secured credit card application will be denied is if the provider is unable to verify your identity.

Secured Credit Cards Guide

Read: What You Need to Know About Secured Credit Cards

How Does a Secured Credit Card Work?

Go through the application process

First and foremost, you will need to apply for your chosen secured credit card. If you’re looking for some guidance as to which card is best for your individual needs, scroll down to the bottom of this page.

The entire application process can usually be completed online. You will need to answer some basic questions about your personal and financial circumstances, as well as verify your identity.

Pay your security deposit

Once you receive your secured credit card, you will then need to pay a security deposit. Until you do this you won’t be able to use the card. In most cases, you will be able to do this online through your account portal, or over the telephone. Moreover, you can make the payment with a debit card or bank account transfer.

Assess your credit limit

In the vast majority of cases, your credit limit will be like-for-like with your security deposit. As such, a $400 deposit would get you a $400 credit limit. However, some providers will give you a percentage of the amount that you put up. For example, if your security deposit amounts to $500, and the provider in question permits a deposit-to-limit ratio of 90%, then your credit limit will be $450.

Use your card

Your secured credit will be issued by either Visa or MasterCard. As such, you will be able to use it virtually anywhere in-store and online. As is the case with any credit card product, your purchases will accumulate throughout the month, and then you will receive a statement that outlines what you owe.

Security deposit only returned once the account is closed

As a final point, the security deposit can never be touched unless you proceed to close the account. Most importantly, you can’t use the security deposit as a means to pay for your monthly statement – in the same way that you can’t use a rental deposit to help pay for your monthly rent!

On the other hand, if you do end up defaulting on your secured credit card, the provider will have the legal right to keep the security deposit. However,  while you might not have lost any money per-say, the default will be reported to the main three credit bureaus and thus – amplify your bad credit score even further!

So now that you know how a secured credit card works, in the next section of our guide we are going to explain some of the things that you need to look out for when choosing a card.

Secured Credit Cards: How to Choose a Card

Although there is often very little to differentiate between secured credit cards, there is still a number of factors that you need to look out for when choosing a card. Check out the following metrics that you need to make considerations for.

APR

First and foremost, you will need to assess the APR that comes with the secured credit card. On the one hand, this should be irrelevant, insofar that you should only apply for the card if you are confident that you will always pay your balance off in full every month. After all, that’s the only way that you are going to be successful in rebuilding your credit score.

However, we understand that there is always the chance that the unexpected can happen and thus – you don’t manage to clear your balance in full. In this sense, while your credit score won’t necessarily go down if you at least meet the minimum repayment amount, you will start to incur interest.

Therefore, try to avoid choosing a card with a ridiculously high-interest rate. The good thing about secured credit cards is that they usually have a single APR rate, so you know what you are up against before you make the application. On the contrary, conventional credit cards will usually give you a range, meaning that you won’t know what rate you will get until you receive your pre-approval offer.

Finally, while not all secured credit cards come with an annual fee, most do. This usually averages $30-$50 per year, so make sure you take this into account, too.

Eligibility

Although we noted earlier that the vast majority of secured credit card applications are accepted, this isn’t always the case. First and foremost, the credit card provider will need to be able to verify your identity. As such, you will need to provide your social security number and/or driver’s license number at the time of the application.

As you will need to be a US resident in order to qualify, you might need to submit additional documentation if the provider is unable to verify this. Furthermore, it is also likely that you will need to have a valid checking account. This is so you can make your monthly repayments in the form of an electronic debit agreement.

Finally, and perhaps most importantly, although most secured credit card providers do not perform credit checks at the time of the application, some will require a minimum FICO score of 300. For those unaware, this is the lowest FICO score possible. In this instance, if you don’t have a credit profile at all (either because you have never obtained a credit product before or you recently became a US resident), then some cards might not be suitable.

Credit Limit

First and foremost – and as we have discussed throughout this guide, your credit limit will never be higher than the size of the security deposit that you put up. However, secured credit cards will still come with a credit limit band. For example, if the credit limit stands at a maximum of $5,000, then you won’t be able to put up more than this.

The reason that this needs to be considered is that credit bureaus will look at the size of your repayments when they are reported. For example, making 12 monthly repayments at $5,000 per month is going to look considerably more favourable than making 12 monthly repayments of $200.

As a result, if you do have the financial means – then you should try to obtain a card that comes with a high enough credit limit to cover your monthly expenses. In other words, if you are planning to use your card to pay for $2,000 worth of monthly costs, then make sure you obtain a secured credit card that permits a credit limit of this magnitude.

Credit Score Tools

Finally – and just as importantly, it will be highly beneficial for your credit rebuilding endeavours if your chosen secured credit card comes with free tools that will allow you to assess your FICO score. Otherwise, it might make it a cumbersome process to ascertain whether or not your FICO score is actually on the up.

In some cases, the secured credit card will allow you to view your credit report with a specific bureau. If they do, make sure this includes one of the three main agencies – Equifax, Experian, or TransUnion.

So now that you know what to look out for when choosing a card, in the next section we are going to give you a step-by-step breakdown of how to use the card effectively.

How to Get Your Credit Score to 800

Read: How to Get Your Credit Score to 800 or Higher: Complete Guide

How to Improve Your Credit Score With a Secured Credit Card

Before we delve into the fundamentals, it is important to remember that there is never any guarantee that you will improve your credit score when using a secured credit card.

Nevertheless, as long as you follow the steps outlined below, you stand the best chance possible of meeting this objective

Step 1: Assess your monthly costs & Pay the security deposit

First and foremost, before we even get to the stage of paying the security deposit, you need to assess how much you typically spend on a monthly basis. By this, we mean everyday expenses that you would ordinarily pay with cash.

Think along the lines of:

  • Gas
  • Public transport
  • Groceries
  • Eating out
  • Morning coffee
  • Utility bills
  • Mobile phone contract

Furthermore, make sure that the expenses on your list can be purchased with a credit card. If not, then don’t include them on your list. For example, while the likes of utility bills and your monthly phone contract can usually be paid for with a credit card, it’s likely that your rent can’t.

Once you have tallied everything up, this is the figure that you need to aim for when paying your security deposit. For example, if your monthly expenses amount to $1,500, then this is the amount that you should try and put up as your security deposit. If you are unable to meet this figure, get as close to it as possible.

Step 2: Set up your electronic debit agreement

Once you have transferred the required security deposit to the credit card provider, your card will then be available to use. However, before you begin your credit rebuilding endeavours, it is crucial that you set-up an electronic debit agreement. For those unaware, this is where the credit card company will automatically take your monthly repayments from your checking account. In fact, the provider might have asked you to set this up at the time of the application.

Nevertheless, not only do you need to make sure the agreement is set up, but you also need to instruct the credit card provider to take the full amount every month. For example, if you spend $1,200 in April and $700 in May, the credit card company will take these amounts in full as and when they become due.

In doing so, not only will you ensure that you never miss a payment, but you will also avoid paying any interest. We’ll cover this shortly.

Step 3: Have a separate checking account in place

This step is absolutely crucial, as it will ensure that you are always able to meet your monthly repayments in full. Otherwise, it is all good and well having an electronic debit agreement in place to take your monthly repayments in full, but what happens if you don’t have enough money in your bank account to cover the payment?

The answer is simple – the credit card provider won’t be able to take the payment, subsequently increasing the risk that you will be hit with a late payment fee. Moreover, this also increases the risk that the late payment is reported to the main three credit bureaus, which could have a negative impact on your credit score.

The solution to this is to obtain a checking account that you will use exclusively to pay your secured credit card payments. The easiest way to manage this is to review how much you have spent on the card at the end of each week, and then transfer the exact amount of funds to your separate checking account. This will also ensure that you refrain from overspending.

Step 4: Start making ‘everyday’ purchases

At this stage of the step-by-step guide, you should now have everything in place to begin your credit rebuilding endeavours. As such, you are now ready to start using your secured credit card. As you have already compiled a list of your everyday expenses – including only the purchases that you can make with your credit card, you should ensure that you always use your card instead of paying with cash.

As we noted earlier, the main three credit bureaus will look at your profile very favourably if you are making large repayments in full every month. This indicates that you are sensible with credit and that you always pay your balance off in full. The larger the payments made, the better this will look.

On the other hand, it is important for us to clarify that you should never use your card to purchase things that you don’t actually need. This will increase your chances of being unable to make your payment in full, subsequently resulting in interest being charged on your purchases.

Step 5: Check your credit report regularly

If you follow the above guidelines to the ‘t’, then you will be well on your way to rebuilding your credit score. Take note, most secured credit card providers will report your repayments every month. This is great, as it means the credit bureaus will be made aware of all of your monthly repayments pretty much as soon as they are made.

With that being said, you should attempt to evaluate your credit report on a monthly basis to keep tabs on how your credit rebuilding objective is going. It is important to note that there is no one-size-fits-all rule as to how long it will take to start seeing an improvement.

The general consensus is that it can take 3-6 months of full monthly payments to start seeing some results, so don’t be disheartened if you don’t see any results in the first few months.

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Kane Pepi

Kane holds a Bachelor's Degree in Accounting and Finance, a Master's Degree in Financial Investigation and he is currently engaged in a Doctorate - researching financial crime in the virtual economy. With a keen passion for research, he currently writes for a variety of publications within the Financial and Cryptocurrency industries. kane@moneycheck.com


Editorial Disclaimer: Opinions expressed here are the author’s alone, not those of any bank or credit card issuer and have not been reviewed, approved or otherwise endorsed by any of these entities.


Disclaimer: The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.


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