If you are just starting out in life or you’ve made a few financial mistakes that have resulted in a low credit score, building good credit should be your first priority. Even with no credit or the worst possible credit you can get a secured credit card and take the first step toward improving your finances.
There are two types of credit card categories: unsecured and secured. Unsecured you are probably already familiar with. It’s a credit card that you can charge items on and pay them off over time without any additional collateral. A secured card will only let you charge as much as you have put down. In other words, if you have a $500 credit limit, that means you have sent the secured credit company a deposit of $500. Most secured credit cards will require a deposit between $200-$500 with the same corresponding credit limit. Lenders at this point in your credit building journey view your poor credit history as too much of a liability. With a deposit they are protected in case you default on your card payments.
You might think, “Well, if I have to put the money down, what’s the point in opening a secured credit card?” The point is this: a secured credit card allows you to create a record of responsible credit history. Using the card each month and paying it off is a simple but effective way to get your credit score on the uptick quick. Most lenders will require a specific amount of time, such as a year of payments received by the due date, before they will consider you for an unsecured card.
Save the Deposit
You’ll need some cash to get your secured card. If you have savings that you don’t think you will need for at least a year you can consider that an option. If you have a limited income try putting aside small amounts from each paycheck. Even if it is only $10 it gets you one step closer to your goal of improving your credit.
Find the Right Secured Credit Card
Because you are dealing with a low credit score, your secured credit card will have higher fees than an unsecured credit card. You can expect to pay about $35 for an annual fee and your APR (annual percentage rate) will be in the upper 20 percent range or higher. Your interest rate is what it cost to borrow money. The good thing is if you pay your entire balance off during the grace period you will not incur any interest fees. For maximum credit building impact you will definitely want to charge a small amount and pay in full each month.
Read the fine print to make sure your credit card reports to all three credit bureaus. The three main companies are Equifax, Transunion and Experian. You will also want to make sure you are signing up for a secured credit card and not a prepaid debit card. While they work in similar ways a debit card won’t send your credit history to the major credit companies, so you won’t build any positive credit history.
Apply for a Credit Building Secured Credit Card
Now that you know the basics, it’s time to get down to business. Fill out your online application and you are ready to go. Generally you will need to have a social security number, bank account, and mailing address.
Some secured credit cards will open a new credit account for you without even checking your credit. In most cases you will incur a hard inquiry hit to your credit score, which will cause it to lower temporarily by a couple of points. Apply sparingly and only to the cards you really want.
Based on the criteria we spelled out above, here are some good secured credit card options. All information is current as of March 1, 2021. Terms and conditions can change frequently, so read the fine print before you apply.
Discover it Secured Card
This secured card has no annual fee and an APR of 22.99% on purchases. While it does have cash back rewards it is best to not get caught up in thee. They are worth very little and may encourage you to spend more than you have. One of the perks of this card is that it provides you with your free FICO score each month. After 8 months of ontime payments you may be able to transition to one of their unsecured cards.
OpenSky Secured Visa
This is the card for you if you have been denied by other lenders. This secured card doesn’t require any credit check. You simply pay the deposit and you have your card. No bank account is required either. Fees include a $35 annual fee and $17.39% interest rate.
Chime Visa Card
This is a secured card that is available to anyone with a Chime banking account. It has no interest or fees and reports to all three credit bureaus. It’s a great way to build credit that doesn’t require any credit check.
Capital One Secured Mastercard
This is the cream of the crop when it comes to secured cards. You may be able to qualify for a $200 credit line without putting the full amount down (either $49 or $99) depending on what your credit score is. This card has no annual fee and an APR of 26.99% on purchases.
Remember it’s still possible to be denied credit for some of these secured cards. Apply to only one at a time so that you aren’t hurting your credit with unnecessary inquiries. To make sure you pay on time, opt for the payment to be withdrawn from your account automatically, before the due date. Payments that are made on time is the key to getting that high credit score you desire. With these steps and just a year of responsible care management, your credit will be well on its way to top tier.