Secured credit cards are one of the most reliable ways for people with a troubled credit history to rebuild their credit scores. And as our economy improves and Americans are looking to increase their credit scores, more major banks have introduced their own secured credit cards.
How Secured Credit Cards Can Help Your Credit
Without good credit, you will be unable to qualify for most loans, yet you will need to demonstrate your ability to pay back a loan in order to rebuild your credit. Since applicants can be approved for a secured credit card with poor or even bad credit, these products allow nearly anyone to rebuild their credit. To qualify for most secured cards, you need to be able to document your identity and have any bankruptcy proceedings discharged.
Secured cards work much like other credit cards, except they require the payment of a refundable security deposit before an account can be opened. But once opened, secured card users can enjoy most of the same features and benefits that other credit card users do. These can include travel insurance and shopping protections, and even rewards.
And with these benefits come the same responsibilities that you would have with any other credit card account. You will receive monthly statements and must make your payment on time. Your security deposit is only used in the event of a default. But with a record of on-time payments, your credit score should improve rapidly, and many secured card users find that they are able to qualify for an unsecured card within a year. (You can track your credit score progress for free every month on Credit.com.)
The Winner: Discover it Secured
Why it won: This card offers the rewards and benefits of its unsecured card, with no annual fee.
The benefits: As a Discover cardholder, you receive a full range of benefits including purchase protection, price protection, rental car insurance and extended product warranty coverage. It also offers 1% cash back on all purchases and 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter. And at the end of the first year, Discover will even match a new cardholder’s rewards for the year.
The costs: There is no annual fee or foreign transaction fees for this card, and customers receive their first late payment fee waived automatically. The standard interest rate for purchases is a variable 23.24% and there is no penalty interest rate.
1st Runner-Up: Capital One Secured MasterCard
Why it won: This card offers first rate benefits with no annual fee and a very low deposit.
The benefits: Applicants place a refundable security deposit of as little as $49, and receive a credit line of at least $200, with access to a larger credit line after five months of on-time payments. Other benefits include extended warranty coverage, a price protection policy and auto rental insurance.
The costs: The standard interest rate for purchases is a 24.99% variable APR. There is no annual fee and no foreign transaction fees.
2nd Runner-Up: Citi Secured MasterCard
Why it won: It offers numerous valuable benefits and a small annual fee.
The benefits: Applicants pay a refundable security deposit of between $200 and $5,000, which becomes their credit limit. Other benefits include worldwide rental car insurance, trip cancellation and interruption coverage, damage and theft protection and extended warranty coverage.
The costs: The APR for purchases is a variable 22.24% and there is a $25 annual fee for this card.
At publishing time, the Discover it Secured, Capital One Secured MasterCard and Citi Secured MasterCard are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.