Secured Credit Cards
Secured credit cards are a terrific option for establishing or rebuilding your credit history. Generally accepted wherever major credit cards are accepted, secured cards are easy to get, even if you have bad credit or no credit history. Making your payments on time will help to build a positive credit reference. Want to learn more about secured cards? Get helpful tips & advice from our experts.
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What is a secured credit card?
A secured credit card is similar to a standard credit card, but with one big difference: To get a secured credit card, you have to first make a deposit with the card issuer equal to the amount of credit you'd like. So, for example, if you write the credit card company a check for $500, that $500, less any fees, becomes your credit limit. (Make sure you read the card agreement closely so you're aware of any fees that may apply.) Back to top.
Who should apply for a secured credit card?
Many people with bad credit don't qualify for traditional credit cards, so a secured credit card is a great way to enjoy the convenience of a credit card when you need it, while simultaneously building credit. Eventually, users of secured cards can graduate to traditional credit cards, so long as they've used the card responsibly (no missed or late payments). Back to top.
Secured Cards vs. Prepaid Cards
Some people who are interested in secured credit cards are also interested in prepaid debit cards. Prepaid cards are also a good, convenient option for people looking to make purchases with plastic (they function like a credit card when you are shopping, except that you cannot spend any more than has been loaded on the card). However, there is an important difference between secured cards and prepaid debit cards. Prepaid debit cards do not help build credit. Since the bank isn't extending you a line of credit for a prepaid debit card, your responsible use of a prepaid debit card is not reported to the three major credit reporting bureaus. That's not to say you must choose one or the other; prepaid cards have benefits as well, and can be part of a strategy to rebuild your credit, which we cover below. Back to top.
How to Rebuild Credit with Secured Credit Cards
Maybe your credit got trashed because of a medical emergency or a job loss. Or maybe there was some other reason you couldn't pay your bills. In the end, when it comes to rebuilding credit, the reason you ran into trouble doesn't matter. A secured card can help you get back on track. Secured cards are different from prepaid debit cards because they report your payment history to one or more of the credit reporting agencies: TransUnion, Experian and Equifax.
As you rebuild credit, you'll want to be careful to avoid using more than 20% of your credit limit, because your credit score reflects how much of your available credit you are using. (So, because the amount you deposit for a secured card will be your credit limit, if you deposit $1,000, you would want to keep your balance to $200 or less. If you want access to more than that, you could consider securing your card with $500, and putting $500 on a prepaid debit card. Then you would have access to a little more than $600 -- $100 from the secured card and $500 from the prepaid debit card -- while still rebuilding your credit. You should look for cards with low or no fees.)
Carefully employing a secured credit card, keeping balances low and paying on time and as agreed will allow you to establish or rebuild your all-important credit score and begin to restore your credit. Back to top.
Given the sheer number of options out there, picking a credit card can seem like an incredibly daunting task. There are so many different types of credit cards, geared to different types of consumers, knowing where the decision making process can be a real challenge. The truth is that if you keep a few important principles in mind, choosing a credit card doesn't have to be stressful ... nor does it have to be a crapshoot. So let's get started.
Know Your Credit Score Before You Apply for a
Credit Card **
Knowing your credit score before you apply for a credit card is important, because particular credit cards are developed for consumers who fall within a particular credit score range. Here are the five generally accepted credit score ranges.
- Excellent Credit (750+)
- Good Credit (700-749)
- Fair Credit (650-699)
- Poor Credit (600-649)
- Bad Credit (below 599)
What this means is that someone with a credit score of 640 shouldn't be applying for credit cards meant for people with excellent credit, because he or she will likely be denied, and if you apply for too many credit cards at the same time, your credit score could suffer. Back to top.
How to Compare Credit Cards
In order to effectively compare credit cards you'll want to use a tool, like the credit card comparison tool on Credit.com, but you'll also need to know what to look for. There are a couple of key indicators.
- APR - This stands for Annual Percentage Rate and it represents how much you'll be charged for carrying a balance on your credit card. If you carry a balance of $100 for a year, and your interest rate is 10%, then you'll be charged $10. These rates vary based on your credit score. The better your score, the lower your rate is likely to be.
- Fees - Credit cards may have a number of types of fees associated with them. Annual fees, late fees, over-limit fees and loyalty fees are just a few. You'll want to make sure you understand which fees, if any, apply
- Rewards - There are lots of kinds of rewards credit cards available - cash-back rewards, mileage rewards, travel rewards and more. It's important to play close attention to the terms of the rewards programs, so you can compare them accurately.
Tips to Consider When Applying for Credit Cards
If you're not sure what your credit looks like, and, as a result, what kind of credit cards you should be applying, you can use Credit.com's free Credit Report Card for an easy-to-understand breakdown of your credit history, along with your free credit scores. If you see something that doesn't seem quite right, you are entitled to a free copy of each of your three credit reports once a year, and you can check them for inaccuracies, and ask the credit bureaus to correct them. Back to top.
*For complete information, see the terms and conditions on the credit card issuer’s website. Once you click apply for this card, you will be directed to the issuer’s website where you may review the terms and conditions of the card before applying. While Credit.com always strives to present the most accurate information, we show a summary to help you choose a product, not the full legal terms - and before applying you should understand the full terms of products as stated by the issuer itself.
** FICO scores and credit scores are used to represent the creditworthiness of a person and may be one indicator to the credit type you are eligible for. However, credit score alone does not guarantee or imply approval for any credit card offer.
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