What is a Good Secured Credit Card?
A secured credit card is usually the only option to rebuild credit for people with recent bankruptcy or other problems in a credit history.
From the outside, these cards work like a regular credit card: you swipe it or pay online and the merchant gets the money for purchases. All your purchases accumulate on a card balance, which you can repay in full at the end of the month or within the grace period of 20-25 days.
The main difference with the secured card is the security deposit you need to put down as collateral against your credit line. There are two types of secured cards: a credit limit exactly matching a security deposit (i.e. $500 credit limit with a $500 security deposit) and the ones that let you have a credit line bigger than your security deposit (so-called hybrid cards).
Some cards issuers review your case from time to time and can offer you an unsecured card eventually. Others let you apply for an unsecured card after a period of good use of the secured card.
The main goal of the secured card is to let you rebuild your credit to be able to get a regular card when your FICO score is good enough.
Therefore, with a secured card you should:
- Always pay off your balance in full at the end of the month.
- Do not use more than 30% of your credit limit – 10% is even better. That is called “credit utilization” and it is an important factor in a FICO score model. If it is needed, pay your balance two or more times a month to keep this ratio as low as 10%.
Here are my favorite secured cards for 2017:
What to look for when shopping for a secured card:
- Consider only the cards that report to major credit bureaus as unsecured. We try to have this information when possible in card reviews on our site.
- Get the card with a grace period. Some secured cards don’t have any grace period and it is just not convenient and can even be dangerous if you miss your payment.
- Find the card with the smallest annual fee. Fees vary a lot, and there is nothing good in owning an expensive secured card – no benefits can offset an annual fee.
- Find a low APR card, but we would not recommend you carry any balance on a secured card. The only goal of the secured card is to let you rebuild your credit and eventually be approved for an unsecured credit card.
It is good to have a card with a FDIC secured and interest earning security deposit to earn something while your money is sitting in the bank account.
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