Secured credit cards are credit cards for people with bad credit or with no credit history at all. These cards can help you build credit so you qualify for an unsecured credit card.
Don’t understand the difference between the two types of cards? The difference is:
- Unsecured credit cards allow you to buy on credit without having to put down collateral. The bank is trusting you to pay the debt back without forcing you to put down a deposit or other guarantee of repayment.
- Secured credit cards require you to put down a deposit in order to gain access to credit. Your credit line will usually be the same as the amount of money you’ve deposited. That way, if you don’t make a payment, the bank can pull the money out of your deposit. In other words, the deposit is the bank’s way of guaranteeing it will be paid back.
Why you would want a credit card that forces you to deposit money when you could just as easily use that money to pay for the stuff you want to buy? Two reasons:
- It can help you establish a better record of on-time payments, thus raising your credit score, which is good because…
- It can lead to banks offering you an unsecured credit card after you’ve proven you can make on-time payments.
NOTE! While a secured credit card requires a security deposit, your monthly charges are NOT paid from the deposit, You make payments just like you would with a standard credit card, and interest is charged if you don’t pay in full. Your security deposit is only collateral — a “backup” in case you don’t pay at some point in the future. As long as the bank does not need to use your security deposit, it will eventually be refunded to you when you don’t need or want the card anymore.
Many major banks offer secured credit cards. Two notable exceptions: Chase does not offer a secured credit card and neither does American Express.
Below we offer a list of secured credit cards currently on the market. While the interest rates and fees vary slightly, most secured card products are very similar.
- BankAmericard Secured Credit Card – Bank of America’s secured credit card allows you to fund a credit line between $300 and $4900. There is a $39 annual fee in addition to your security deposit, and the interest rate on any balances you carry on the card is 21.24%.
- BBVA Compass Optimizer Credit Card – Despite the fancy name, it’s just a secured credit card. Make a deposit in a collateral account and your credit line equals the size of your deposit. Annual fee of $40 and interest rate of 17.49% are OK for this type of credit card.
- Capital One Secured MasterCard – You put down a deposit of at least $49, $99, or $200 (Capital One determines this minimum deposit based on your credit history), and you get a credit line of at least $200, which you can increase by depositing more. After the minimum deposit, you can deposit more money to increase your credit line. For example, if you want a $500 credit line, you’d have to deposit another $300 in order to get the bigger credit line. Has a high 24.99% interest rate but no annual fee.
- Discover It Secured Credit Card – Deposit between $200 and $2500 and your deposit amount becomes your credit limit. Unlike most secured cards, this one gives you rewards — you get 1% cash back on all purchases, and 2% cash back on restaurant and gas purchases (on up to $1000 in combined gas/restaurant purchases per calendar quarter). Has a pretty high 23.99% interest rate but no annual fee.
- First National Bank of Omaha Secured Visa – You deposit between $300 and $5000 and your card’s credit line is equal to your deposit. No annual fee. Interest rate is only OK at 18.99%.
- U.S. Bank Secured Visa – You deposit an amount between $300 and $5000 and the amount of your deposit equals your card’s credit line. This card also has a $29 annual fee that is not part of the security deposit, and it has a 20.24% interest rate on purchases if you don’t pay off the card each month.
- Wells Fargo Secured Visa – Deposit anywhere from $300 to $10,000 in a collateral account and your credit line is the same as that deposit. You must have a Wells Fargo checking or savings account established in order to transfer money into the secured card’s collateral account. In addition to the security deposit, this card has a $25 annual fee and a 20.24% interest rate.