Approximately 68 million people in the US have bad credit scores. This is close to a third of the 220 million who qualify to be scored.
For these individuals, accessing finance for mortgages, tuition, and even for emergencies is difficult.
It is therefore important to ensure that your credit rating remains good. Maintaining and improving your credit score requires you to be up to date with all your bills and at times taking up credit to prove your creditworthiness.
Credit cards are the easiest way to boost your score. However, if your rating is very poor, you will not qualify for one.
If you are in this category, do not fret. Taking up a secured credit card can put you back on track.
In this article, we will look at what secured credit cards are, how they work, and the top three secured credit cards you should consider.
What Is a Secured Credit Card?
A secured credit card is a type of credit card that allows you to access credit that is secured by cash collateral.
When taking up an ordinary credit card, the card company assesses your creditworthiness and assigns a credit amount you can access based on your repayment ability.
With a secured credit, you must first put up collateral for you to access credit. The amount of collateral you put up is either greater than the amount of credit you will be able to access or at least equal to it.
Basically, since your credit card company has nothing to back your suitability for accessing credit, you are required to provide the security for the credit you will receive.
This protects them in case you fail or are unable to honor your repayment obligations.
These cards are normally marketed to people without a credit history or those with poor scores.
This allows them to either build or rebuild their credit scores. The deposit requirements for such cards normally range between $ 200 and $ 1000.
Which Are the Best Secured Credit Cards?
Every credit card company also offers secured credit card options. However, it is important to shop around before making a formal application.
Institutions will have different terms that you should consider. Some may charge lower interest rates whereas others may have lucrative incentives and bonuses.
It is therefore important to make a thorough assessment of the options available in order to get a provider that will suit your needs.
Discover it Secured
To attract customers, credit card companies offer various rewards for clients when they use their cards. With the Discover it Secured Credit card, you will earn 2% cash back for all the purchases you make at restaurants and gas stations.
You will receive this cash back for combined purchases of up to $1,000 for every three months.
You will also be able to earn 1% cash back on all other purchases you make. In addition, you will get an equivalent amount of the cash back you earn in your first year from Discover.
To take up this card, you will need a minimum security deposit of $ 200. The maximum deposit is set at $2,500.
If you make your repayments in full and on time, you stand a chance of receiving your security deposit back whilst retaining your credit limit.
To determine this, Discover starts conducting reviews on your account from the eighth month.
When taking up a Discover it secured card, you will get a 10.99 % introductory rate for balance transfers. Afterward, balance transfers will have a 25.24% APR. Every balance transfer will also be charged a balance transfer fee of 3%.
For you to transfer any balance, your deposit should be able to cater for both the balance and the fee.
Discover charges a late repayment fee of up to $ 39. However, your first late repayment is not subject to any fees.
Sometimes things happen and you may end up behind on your payments. With Discover, you will not be charged a higher interest if your payments delayed by more than 60 days.
When sending your monthly billing statement, Discover also includes your FICO score. They also give you free alerts when your Social Security number is detected in any risky websites on the internet.
Capital One Secured MasterCard
With most secured credit card companies, you have to put up collateral equal to the amount of credit you will receive. However, this is not the case with Capital One. The security deposit they request is determined by credit standing.
This means that you can access credit that exceeds the amount you are required to put up as security. For instance, to access a $ 200 line of credit, the deposit required may be as low as $ 49.
Though you will not get any rewards for using your card, you may qualify for a larger line of credit after making the payments for the first five months on time.
If you qualify, you will not be required to make another deposit to increase your security.
Another benefit of the Capital One Secured MasterCard is the fact that you will get to enjoy other benefits preview to MasterCard holders.
These include waivers on auto rental damage, travel accident insurance, extended warranty for select items, and 24hr roadside assistance.
To ensure that you will be able to make repayment on time and comfortably, Capital One allows you to pick a due date that suits you. In addition, you will not be charged an annual fee.
As you apply for the Capital One Secured card, you should be wary of its interest for purchases.
It has a variable APR of 26.99%. However, you can avoid paying any interest on your balances if you make full and timely repayments every month.
Though you can access a line of credit larger than your security deposit, these cards do not have rewards or cash back programs.
Also, unlike most unsecured credit card companies, Capital One does not give credit to applicants whose income does not exceed their rent by $425.
OpenSky Secured Credit Visa
The OpenSky secured credit card is a perfect fit for people who have terrible credit accounts.
This is because they believe in giving everyone a chance. Even if your record is tainted by late loan repayments or even bankruptcy, you can qualify as they do not conduct credit checks.
You also do not need to have a bank account to qualify.
With this card, you will be able to choose the amount of credit you can access. This will range between $200, which is the minimum security deposit, to $ 3,000.
To make the security deposit, you can mail a check or money order, deposit via debit card, Western Union, or make a wire transfer to Capital Bank.
The OpenSky Secured Credit card is a great option if you want to improve a bad credit score. However, they do not have any bonus for signing up, and you will be charged an annual fee of $ 35.
Any foreign purchase you make will be charged a 3% foreign purchase transaction fee. Also, as your credit improves, you will not get the option to convert your card to an unsecured credit card.
Which Card Suits You?
As you may have noticed, different cards have different features. Before you apply for a secured credit card, make sure the terms offered suit your goals.
For instance, the secured credit card from OpenSky is suitable for those with tainted records and still need to access credit.
On the other hand, the terms offered by Secured, make their card suitable for individuals who want to earn something back from their spending.
The Capital One secured master card is great for people with a fairly good score and would wish to access a line of credit larger than the security deposit that will be required of them.
Though they only make up 1% of the credit card market, there are other many secured credit card offerings available.
Some have terms that make them suitable for individuals with different needs. Let’s take a look at some worthy mentions.
Wells Fargo Secured Credit Card
The secured credit card from Wells Fargo is designed to cater to the individuals who need to access to a huge line of credit but may otherwise not qualify for a regular credit card.
The minimum security deposit required is $ 300. However, you can access credit of up to $10,000 with an equal security deposit.
Though the timeline is unspecified, you can be upgraded to an unsecured credit card. To qualify, you need to make sure all your repayments are made on time. This also goes for the accounts you have with other institutions.
With this card, you will also enjoy other visa benefits. These include cell phone protection, auto rental collision damage waiver as well as travel and emergency assistance services.
To qualify for this card, you are required to have a Wells Fargo checking or savings account.
Once you qualify, you will not benefit from any signup bonus. Also, a $ 25 annual fee will be charged on your card as well as a 3% foreign purchase transaction fee.
Wells Fargo Business Secured
Entrepreneurs have also not been left behind. Do you have a small business and a few employees with little to business credit history? The Wells Fargo Business Secured has been structured to cater to your needs.
You can access a line of credit for your business that ranges from $ 500 to $ 25,000 with an equivalent security deposit.
Your employees are also not left behind. You can add up to 10 of them to your account. This card also comes with a reward program. All new cardholders will earn unlimited 1.5% cash back on all credit card purchases with no fee.
These rewards are paid directly to a linked checking account or a Wells Fargo Business secured credit card after every three months.
An annual fee of $ 25 will be charged on every card. Though you may qualify to get an unsecured credit card with a good repayment history, the cash advance and balance transfer fees are only disclosed once your application is approved.
First National Bank Secured Visa
To access credit via the First National Bank secured credit card, you will need to put up a security deposit of between $ 300 and $ 5000.
If you would like to qualify for an increased credit limit or better yet, an unsecured card within a year, this is the card for you.
With a good repayment record, you can qualify for a credit increase within seven months. If you maintain the same repayment record thereafter, you can qualify to receive your security deposit within 11 months.
Though there is no signup bonus offered, you will not be charged an annual fee. However, the balance transfer fee is $ 10 or 5%. You will also be charged a 3% foreign purchase transaction fee.
Monitoring your FICO score is easy as a First National Bank cardholder. They will send it together with your billing statement every month.
How Can a Secured Credit Card Help Me?
The importance of being able to access credit and at affordable rates cannot be understated.
However, your ability to access credit is dependent on your credit score. This is where secured credit cards come into play.
They allow you to access credit that can help you build or rebuild your credit score by improving your payment record.
In turn, you will be able to access credit at more affordable terms.
How to Choose a Card That Suits You
Before you even set out to find a card that has favorable terms, you should do a thorough self-assessment. Identify the precise reason for applying for such a card.
Look at your spending habits and determine any adjustments you need to make before applying. You can then proceed to research the card with terms that align with your goals.
If you follow these steps you will be able to avoid the pitfalls that most people get into while applying for credit cards.
Unfortunately, when it comes to matters of finance and credit, most people do not know where to start.
Bonsai finance is a platform dedicated to helping people to improve their financial situation by providing access to financial services.
Want to improve your credit score? Contact us today for more information concerning secured credit cards.
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