If you have no credit or bad credit, you may be wondering what types of cards are right for you. While cards like the Sapphire Reserve or Wells Fargo Propel are where you might want to get to, you have to start somewhere. In order to grow into those types of products you first have to work on improving your credit score. There are many ways to improve your credit score, but today we’re going to focus on secured credit cards.
What is a secured credit card?
Before we define what a secured card is, lets define what a credit card is. A credit card allows you to borrow money from a bank to make purchases. Banks such as Chase, Wells Fargo, and Citi all offer cards to their customers. Each card is assigned a credit limit, which is the maximum amount of money that a customer can spend. The credit limit is extended to the customer at no charge to them. Credit cards charge interest on balances which are not paid off in full at the end of a billing cycle. The interest rate is known as the APR (Annual Percentage Rate) and varies from card to card.
A secured credit card on the other hand require a deposit from the customer prior to being issued. The amount deposited will be used to calculate the credit limit on the card. For example, the Capital One Secured Mastercard requires customers to deposit either $49, $99 or $200, based on credit worthiness. Once that deposit is complete they will be extended a credit line of $200. Other cards like the Discover it Secured will tell you the upper credit limit that is available to you. You’ll then have the ability to deposit cash up to that maximum. The amount you deposit then becomes your available credit limit.
Who should sign up for secured credit cards?
In the eyes of financial institutions, having no credit is the same as having bad credit. Put another way, banks want to issue cards to whose who’ve proved worthy of the privilege. For that reason we generally recommend secured cards to folks with no credit, or bad credit. Bad credit is defined as any credit score from 300 up to 600. Folks in the 600-700 range are more likely to be approved for non secured cards, and once you pass 700 you’re well beyond secured card territory. Check out our CreditKarma.com review if you’ve never checked your score before.
What are some good secured credit card options?
Remember, the goal of secured credit cards is to afford you the opportunity to improve your credit score, not pad your mileage account. The cards we recommend will neither be made of metal nor will they accrue much in the way of rewards. Still, they offer no annual fees and the ability for you to spend money which will be reported back to the credit agencies.
Discover It Secured
The only secured card offering rewards, 1% on all purchases and 2% on gas stations & restaurants on the first $1,000 spent per quarter. As a sign-up bonus, they’ll double your cash back earned after the first year. No annual fee. Account review after 8 months to see if you can be transitioned to an unsecured line of credit. Requires a refundable security deposit up to the amount approved, $200 minimum. 24.64% variable APR.
Capital One Secured Mastercard
No rewards. No annual fee. $200 credit line after making a security deposit of either $49, $99, or $200, depending on credit worthiness. Access to higher credit line after 5 months of on time payments, no additional deposit required. 24.99% variable APR.
Citi Secured Mastercard
No rewards. No annual fee. Minimum $200 security deposit is required. 24.25% variable APR.
What is right for you?
The goal with a secured card is simple; get in, spend, pay off, and get out. Earning rewards is simply not that important, as your goal should be to have the card for less than 12 months. Sign-up, spend what you can afford to pay off on the card. Pay the card off on time and in full each and every month. 12 months or sooner you should be in a position to move on to bigger and better products.
If you need help building your credit, please reach out. The goal at PursuingPoints is to help everyone in building better credit, and maximizing rewards along the way.