Guide | How to Find and Get the BEST Secured Credit Cards to Rebuild Bad & Poor Credit
Some might argue that your bank account balance is the best indication of your financial health; however, in actuality, it is your credit score.
That is, if you ever want to buy a house on a mortgage, finance a car or apply for a credit card, and our best bet is that you will need to do one of those things at some point in your life.
What if you have an awful credit score? This could be because you have fallen on some hard times and accumulated a lot of debt. Perhaps you have missed a few payments and defaulted on some loans.
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Or maybe you have never used a credit product before and, as a result, you do not have any credit history to speak of which can be just as bad as having poor credit when it comes to securing loans. Many students find themselves in this situation. This is where secured credit cards are helpful.
The best secured credit card serves two main functions: it helps you make purchases at physical or online vendors that require a credit card, and it allows you to avoid going into debt by using money you have already provided as collateral.
However, there is a bonus function that the best secured credit cards serve: they can help you build up your credit, and this is why people apply for them.
This article will go over how you can use secured credit cards for bad credit – more specifically for rebuilding your credit. It will briefly explain what exactly a credit score is and how it is calculated.
Furthermore, the article will provide background on the two different kinds of credit cards you can get – secured credit cards or unsecured credit cards – and provide recommendations for some of the best secured credit cards you can consider.
What Is a Secured Credit Card? What Is the Difference Between an Unsecured Credit Card and a Secured Credit Card?
What is a secured credit card? Start with this: loans are either secured or unsecured. If a loan is secured, there is specific collateral the lender has a right to if you default on your loan repayment.
For instance, when you get an auto loan, the money from that loan is specifically meant for you to buy a car. If you are unable to repay the loan, the lending institution has a right to take that car to pay off the loan.
This is why the interest rate on an auto loan is typically lower than the interest rate on an unsecured personal loan (where there is no specific collateral backing the loan).
The same idea applies to unsecured and secured credit cards. With an unsecured credit card, there is no collateral. These are the more well-known kinds of credit cards. You get a certain limit, say $1000, and if you make a $50 purchase on that card, you get a 30-day grace period to pay it back.
If you do not have the funds to immediately pay that money back, you pay a good faith minimum payment and then interest starts accumulating on the outstanding balance. Once you have borrowed $1000, you cannot use the card for any more purchases until you have reduced the balance. In the meantime, interest keeps accumulating.
What is a secured credit card’s difference? A secured credit card operates more like a “practice credit card.” You provide a deposit, and that deposit serves as the credit line attached to that credit card. Keep in mind that this deposit is not used to make your monthly payments.
It is simply used as collateral to ensure the bank does not lose if you cannot make your payments, so do not assume that this deposit will pay off your bills. You are supposed to show that you can demonstrate the same responsibility (making monthly payments) required for a regular unsecured credit card.
How Do Credit Scores Work? (The Best Secured Credit Card Will Help You Build or Improve Your Credit Score)
The best secured credit card will help your credit situation. It is basically the only reason why you would ever get a secured credit card. Think of it as your secured credit card for bad credit (or no credit!).
Secured credit cards for bad credit are helpful since they are accessible for those who do not have a good or existing credit history and because they can report your behavior to the three main credit bureaus.
These credit bureaus provide the credit reports that determine your credit score.
Your credit report is a detailed overview of the credit products you have or have had, your outstanding balances, and your payment history. It would be unbelievably tiresome and inefficient for banks to examine the credit score of every single person who applied for a loan.
Instead, they use your credit score (usually the one produced by FICO) to assess your creditworthiness. The best secured credit cards for bad credit are meant to help you get some good reports headed to these three credit bureaus.
The Fair Isaac Corporation, more commonly known as FICO, developed a formula to reflect the creditworthiness of a person based on his or her credit report.
Your FICO score is the number most commonly used by lending institutions. While the exact formula is secret, FICO has made public what factors contribute to your credit score, and this is good to know when figuring out how to use your secured credit cards for bad credit. The breakdown is:
- 35 percent payment history
- 30 percent amount owed
- 15 percent length of credit history
- 10 percent credit mix
- 10 percent new credit
As you can see, a large portion of your credit score is calculated based on your payment history, money owed, and how long you have held credit. Getting a secured credit card for bad credit can help you play catch up or do some fixing if needed.
REMINDER: Your credit score is based on your credit report. If there are errors on your credit report, which definitely does happen, your credit score will be inaccurate, unfairly leaving you with either declined applications or high interest rates on loans.
Before deciding that secured cards for bad credit are your only option, verify the information on your credit report. You get one free credit report each year from all three credit reporting bureaus: Experian, Equifax, and TransUnion.
What to Look for When Searching for the Best Secured Credit Card (Guide to Choosing the Best Secured Credit Cards for Bad Credit)
You have to be on the lookout for two key things when searching for the best secured credit cards for bad credit. The first is whether or not the secured credit cards for bad credit you are considering actually report your payments to the three credit bureaus.
The second is whether these cards advertised as the “best secured credit card” are not just companies trying to take advantage of people in a difficult spot.
The Best Secured Credit Cards Report to the Credit Bureaus
The first is for obvious reasons. The only reason to really get a secured credit card is to eventually qualify for an unsecured credit card, which does not require a deposit. The best secured credit cards for bad credit should be designed to help you do this.
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To make sure this is the case, make sure the bad credit secured credit cards you are considering actually report to Experian, Equifax, and TransUnion. If they do not, eliminate them immediately.
It is extremely important to check this before signing up for any bad credit secured credit cards.
Imagine going through the trouble of putting things on your credit card to pay them off and build a history, only to check back in a few months or in a year and see that it has had zero effect on your credit history. Save yourself the time and the stress by ensuring the secured cards for bad credit you want to use will actually help you in this regard.
Beware of Supposed “Best Secured Credit Cards” That Take Advantage of Desperate Consumers
This second reason is for your own well-being. Bad credit secured credit cards are good business for financial institutions, so, of course, there will be annual fees, and sometimes these annual fees are higher than the annual fees of traditional credit cards. This is not meant to be predatory – it is simply business.
People need the credit-building power of secured cards for bad credit, so financial institutions are naturally interested in making a buck off of this.
That being said, there is a line; unfortunately, some providers of secured cards for bad credit cross that line by participating in predatory activities. These companies that tout the best secured credit card are aware that their target audience is desperate for a credit card and an opportunity to improve their credit.
You need a credit card to book a hotel room or a flight, and you need a credit score for virtually any credit product, like a mortgage or an auto loan. So, of course, people are eager to listen when they hear a company say it has the best secured credit card for bad credit.
No matter how in need of a secured credit card you are, do not take the bait. Companies may lure you in with their supposed best secured credit card for bad credit only to slap you with exorbitant monthly fees and sky-high interest rates that almost guarantee you never get out of debt.
Make sure to do some comparison shopping to find the best secured credit card for bad credit. Even the best secured credit card will have a higher interest rate than an unsecured credit card, but the best secured credit cards for bad credit will also:
- Report your payment history to the three credit reporting bureaus
- Offer to upgrade your secured credit card to an unsecured credit card after some time
- Add credit to your secured credit card beyond your deposit after you have built up some good faith
Our Picks for the Best Secured Credit Cards for Bad Credit
Still at a loss about where to find the best secured credit cards for bad credit or for building credit? Browse some of our picks for the best secured credits cards for credit building.
- The Discover it Secured Credit Card
The Discover it Secured Credit Card is a terrific choice for best secured credit card for many reasons. This card has no annual fee, earns cash back, and you get your FICO score for free when you log into your Discover account or on your monthly statement. And, of course, it reports your payment history to all three credit reporting agencies.
This secured credit card for bad credit allows you to enjoy the benefits of a regular credit card while helping you work towards your ultimate goal of better credit and an unsecured credit card.
- The Capital One Secured MasterCard
The Secured MasterCard from Capital One provides a lot of flexibility for a secured credit card. Like any card that wants to call itself the best secured credit card, this card reports to all three credit bureaus. In addition to that, the Capital One card allows customers to get a credit limit that is higher than their security deposit, depending on their creditworthiness.
There is a sliding scale of incentives for Capital One’s secured credit card for bad credit that is based on your individual credit score. Not all poor or non-existent credit scores are lumped together in one category, although you can certainly still apply for their secured card if you have a very bad credit score and simply pay a higher deposit or a deposit equal to your credit limit.
There is no annual fee, and you gain access to all the relevant credit information you need to stay on top of your credit progress, including your credit score, through its tool CreditWise. Capital One’s secured MasterCard is a strong contender for the best secured credit card.
- First Progress Platinum Suite of Cards
First Progress offers three secured credit cards with relatively low interest rates, but the tradeoff is an annual fee. If you are looking for secured credit cards for bad credit, you should do your absolute best to avoid carrying a balance, but if you think that you will need to, you may want to get a card that has an interest rate lower than the one normally carried by secured credit cards.
Choosing secured credit cards with annual fees will also mean a decrease in the interest rates.
Platinum Elite MasterCard Secured Credit Card: 19.99 percent variable APY for $29 annual fee
Platinum Select MasterCard Secured Credit Card: 14.99 percent variable APY for $39 annual fee
Platinum Prestige MasterCard Secured Credit Card: 11.99 percent variable APY for $44 annual fee
Be realistic about your financial needs, crunch the numbers, and decide which best secured credit card is right for you.
Beware of Offers of Secured Credit Cards for Bad Credit with No Deposits
You may come across offers of secured credit cards for bad credit with no deposits. What should you make of these? Quick answer: If it sounds too good to be true, it probably is.
Remember our early warning about secured credit cards for bad credit providers that want to take advantage of people in desperate situations? Here’s your first opportunity to heed that warning.
It is rare that any legitimate company would advertise such a thing, but if you do come across one, chances are they will fleece you with a ridiculously high interest rate (even higher than for a secured credit card) and unbelievable fees. Don’t take offers for secured credit cards for bad credit with no deposits with a grain of salt – in fact, don’t take them at all.
Keep in mind that the secured credit card’s deposit is there for your benefit as well. Say you do fall on hard times again – the deposit is there to serve as your safety net. Even if you do not need to use it, it will provide you with additional peace of mind so that you can rebuild your credit with a little bit of comfort.
Everybody deserves a second chance.
In some cases, people never got a chance to start at all! If you are trying to repair your credit or build up a credit history from scratch, secured credit cards are a safe and easy way to do so. They are not prepaid cards – these are real credit cards!
They just come with a little padding. So comparison-shop for the best secured credit card, be financially savvy against potential predators, and get started building the financial future you deserve.
AdvisoryHQ (AHQ) Disclaimer: Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info. Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.