Good credit can open up new doors and save you money throughout your life. Good credit means you’ll be more likely to get approved for loans, find better interest rates on financial products and have an easier time renting a home or finding a job. Bad credit, as a result of financial pitfalls, can do the opposite.
You can build a healthy credit history by using a credit card responsibly. A healthy credit history is essential to a good credit score.
Before you get a credit card, think about why you might want or need one. It is advisable that you set financial goals for yourself and create a budget. Then determine if you’ll need to change any financial habits to ensure you can pay your credit card bill each month.
There are a number of credit cards that are designed or have features that can help you build credit. Read on, and we’ll discuss the best the best credit cards to build credit with.
The Best Credit Cards to Build Credit Are Secured
If you’re someone with bad credit or no credit history at all, you may find it difficult to be approved for a credit card. A “secured” credit card is a way for credit card companies to mitigate the risk of taking on an individual with bad history or no history.
A secured card requires a cash collateral deposit that becomes the credit line for that account. For example, if you put $800 in the account, you can charge up to $800. Sometimes a bank may reward you for good payment and add to your credit line without requesting additional deposits, but this is not always the case.
Most secured cards charge an annual fee, which will vary by the card provider. It’s important you read all aspects of your new credit card agreement carefully. Some people have gotten secured cards and have seen their entire deposit used to pay fees instead of fund new purchases.
Secured cards are the best way to build credit from scratch, as long as you use the card responsibly. You should not get these cards to carry any balance. While secured cards make sure you never spend more money than you can afford, it’s not a good idea to keep one any longer than you have to.
Due to their great ability to build credit, all the cards we’ll recommend below are secured credit cards. Be sure to note the differences between them in terms of fees and deposit amounts.
Capital One Secured Mastercard
The Capital One Secured Mastercard is a great credit card if you’re looking to boost your credit score.
The card has no hidden charges and an annual fee of $0. The ongoing APR is 24.99% Variable APR, which is high. Even so, it’s a good secured credit card with few fees. It doesn’t hurt that it is from such a reputable company.
One of the best things about this card, in particular, is its low deposit requirement. With most secured cards, your deposit must be equal to your credit limit. But with the Capital One Secured Mastercard, you can get a limit of $200 for a deposit of $49, $99 or $200, depending on your credit.
In addition to a potentially small security deposit, you can choose to pay the security deposit in installments if approved. If you want a higher credit limit, you can increase your security deposit up to $1,000.
Underwriting standards are tighter on the Capital One Secured Mastercard than for many other cards. If you don’t have a checking or savings account or if your rent is almost as high as your monthly income, you may not qualify.
So if you’re recovering from recent financial pitfalls or credit damage, this may not be the card for you. But if you’re a beginner in the credit world, the Capital One Secured Mastercard could be the perfect match. It’s certainly worth an attempt to apply.
Discover It Secured
The new Discover it(R) Secured is an amazing option when it comes to secured credit cards.
It comes with many of the best features of Discover’s non-secured credit cards, including generous rewards, and an annual fee of $0. It also comes with free access to your FICO score so that you can watch your credit score rise as you continue to pay off your card.
Like most other secured credit cards, the Discover It Secured requires cardholders to put down a security deposit. This deposit can decide what the card’s credit limit will be. Deposits can be as low as $200 or as high as $2,500, depending on the size of the deposit.
You may not be thrilled to lose money to a card’s security deposit and may be eager to make the move to an unsecured card.
The Discover It Secured offers a few advantages that might help to speed that process along. Because Discover reports your activity with the card to all three credit bureaus, Experian, Equifax and TransUnion, you should see a rise in your credit score if used responsibly. After eight months with the card, Discover will begin monthly reviews to see if you’re ready to switch to an unsecured card.
Best of all, when you do switch to an unsecured card, you’ll be able to do so from your same account, saving all the headache of starting anew or transferring information.
Open Sky Secured Visa
The Open Sky Secured Visa doesn’t have the lowest annual fees or highest credit limits. But it does have two major benefits that can make a huge difference to someone coming off financial hardship: there’s a soft credit check for applicants, and you do not need to have a bank account.
This means the card is available to individuals with extremely low credit scores. Even if you have no credit history at all or are currently operating without a bank account, the Open Sky Secured Visa could still be the card for you.
You can make your deposit and pay your bills with a debit card, wire transfer, check or money order as opposed to a bank account. Deposits start as low as $200. If you’re looking to rebuild your credit but can’t seem to catch a break in getting a new card, this is the one to try.
The only big requirement for the card is that your monthly income is higher than your monthly expenses. If this requirement is met, an approval should be likely.
Digital FCU Secured Visa
When you have bad credit, most of your card options will include high fees and high interest rates. That’s just the name of the game. The Digital Secured Visa from the Federal Credit Union is the exception to the rule.
It offers a potentially incredible deal for people with bad credit. It has a $0 annual fee which can be impossible to find in a secured card. The ongoing APR is low for any credit card, especially for one designed for someone with bad credit. It sits at 13.00%– half the rate of many popular secured cards.
As with most secured cards, you do have to make a security deposit equal to your credit limit. But the Digital FCU Secured Visa doesn’t put a cap on how much you can deposit. This means that your limit can be as high as you want it to be.
To get the card, you do need to be a member of the Digital Federal Credit Union. There are many ways to become a member, but it still does require a number of extra steps. In the end, those extra steps are probably worth it for such a great credit card.
Citi Secured Mastercard
The Citi Secured Mastercard can be a great card for initially building credit. Like a few of the other secured cards we’ve mentioned, it has an annual fee of $0. The ongoing APR is 24.24%.
The minimum deposit is a clean $200, the max $2500. Essentially, it’s a straight down the middle choice for a secured card, without some of the perks of our previous choices.
That said, if you have trouble applying for some of the other cards, this is a great card to go for if you’re trying to build credit from scratch.
However, it’s less promising for those hoping to bounce back from financial or credit woes. You cannot be approved for a Citi Secured card if you’ve had a bankruptcy in the last two years, according to their website. It can be difficult to be approved if you’ve had other credit missteps in your past.
First Progress Secured
Even by First Progress’ own words, their credit cards are designed for “customers who may have had credit issues in the past and need to re-build credit or who are just starting out and need to build new credit.”
It should be no surprise then that the First Progress credit card offers a wealth of advantages engineered to do just that.
There is no minimum credit score required for the First Progress Secured Card, and you can qualify even if you have no credit file. You can choose from three different cards, differentiated by their annual fees and interest rates. The lower the APR on a card, the higher the annual fee, in three tiers. First Progress says the same approval standards apply for all three cards: Elite, Select, and Prestige.
Discover It Student CashBack
The common age where most individuals tend to need a credit card is their years in college, and yet, it can be difficult for a college student to qualify for a card.
Students who are trying to build credit for the first time may want to consider student credit cards instead of secured cards. Student credit cards tend to have low income and credit requirements and will come with a low credit limit to start, to offset these easy requirements.
The Discover It Student CashBack card doesn’t have an annual fee or foreign transaction fee. Discover waives your first late payment fee, giving young adults new to credit cards a chance to make a mistake without financial repercussion.
The card has a zero percent APR on purchases and 10.99 percent on balance transfers for the first six months. Following that, the APR ranges from 14.49 percent to 23.49 percent variable depending on your creditworthiness. The minimum credit limit is $500.
The Student Cashback card offers some similar rewards to other Discover cards. Students can earn 5 percent cash back at different places each quarter like gas stations, grocery stores, and restaurants. The card earns 1 percent unlimited cash back automatically on all other purchases.
There are perks specifically designed for the card as well. Students who maintain at least a 3.0 GPA can also earn $20 cash back each school year for up to five years in addition to the other rewards.
Of course, you must be a college student to qualify for the card. Also, to comply with the Credit Card Accountability, Responsibility, and Disclosure(CARD) Act of 2009, applicants who are younger than 21 will need a cosigner to qualify for a card.
You Can Start Building Credit Today
It can be tough to get by in life without the help of a credit card, in the short-term and in the long-term. That’s why 185 million Americans have at least one credit card.
And yet, it can be hard to get a credit card and build good credit if you don’t have a history yet or have fallen on hard times in the past.
That’s where the above cards come in. Any of the previously mentioned credit cards can get your credit score back in a healthy range in no time. They truly are the best credit cards to build credit available in the market, and it should be easy to find the one that best suits you.
Need more financial advice, tips or tricks? Let Bonsai help. Check out our learning center for more information on how to navigate the financial ups and downs of your life.