It is advantageous to have a good credit history if you intend to apply for a student loan, purchase a home, or lease a vehicle. But you’re not totally out of luck if you have poor or low credit. One choice that can assist you in establishing or reestablishing your credit score is a secured credit card. Here’s all you need to know about a secured credit card and how the various options like Capital One and wells Fargo work.
What Is A Secured Credit Card?
A secured credit card is a sort of credit card that the cardholder backs with a cash deposit. This deposit serves as account collateral, giving the card issuer protection in the event that the cardholder is unable to make payments. With a secured credit card, the sum of the deposit you make becomes the credit limit on your card.
Subprime borrowers, or those with weak or scant credit histories (sometimes known as “thin-file borrowers”), are frequently given secured credit cards. Secured credit cards can aid borrowers in raising their credit scores because the card issuer will report on them to credit reporting bureaus.
How Does a Secured Credit Card Work?
The majority of credit cards are unsecured, meaning there is nothing “securing” or ensuring your capacity to pay off your accrued balance, which is essentially money you owe to the credit card issuer. It has a contract with you that requires you to pay your debt in full or in part every month, but you haven’t provided any assets or income to support that commitment. (That’s one reason why credit card interest rates are so high: Unsecured debt is always more costly than secured debt, such as mortgages or vehicle loans, to compensate for the lack of collateral).
Application Procedures for Secured Credit Cards
Similar to how you would apply for a standard credit card, you can apply for a secured credit card. They all have the same appearance and are issued by the major credit card companies Visa, Mastercard, and Discover.
Cardholders may be qualified for benefits and rewards and can use their card anyplace that the card brand is accepted. Additionally, cardholders receive monthly bills that detail both their end-of-period balances and card usage for the previous month. They must pay at least the minimum amount due and, as specified in the credit agreement, interest on any unpaid balances.
Like regular cards, secured credit cards could have an annual fee. Additionally, they could levy costs for the initial setup or activation, credit expansion, monthly maintenance, and balance inquiries. All of them can and do reduce the deposit and the amount of accessible credit, so it is important to check them out before enrolling.
With secured credit cards, you do have to put up collateral as a condition of the card company accepting your application. When you apply for secured credit cards, the card issuer performs a hard inquiry with a credit reporting agency to evaluate your credit history and score. The subsequent step calculates the deposit required to start an account and the available credit line.
How Do Secured Credit Card Deposits Work?
With a secured credit card, the cash deposit you make determines your credit limit, or the maximum amount you are permitted to charge. The deposit provided to start the secured credit card account serves as collateral, so once it has been paid, it remains in reserve and is not available to the borrower.
You could lose your deposit, but often secured card issuers would only make use of it if you miss a predetermined number of payments or default. If you cancel the card and your balance is paid in full, you get your deposit returned. Alternately, some issuers of secured credit cards will periodically check a borrower’s payment history and, if they consistently make payments, convert their secured card into a standard credit card. You will also get your deposit back in this scenario.
Using a Secured Credit Card to Build Credit
It can be advised to get a secured credit card and responsibly use it for a few months or a few years in order to develop or enhance your credit history and/or raise your credit score. A secured credit card will submit your account history to the credit agencies so that it can be included in your credit report, unlike a prepaid credit card, which works more like a debit card. This indicates that having a secured card can help to raise your credit score over time.
In reality, secured-card lenders may offer to boost your credit limit over time or even to switch you to an unsecured card (in which case you can receive your deposit back) provided you maintain a good payment history. It normally takes paying off debt in full each month, as well as, of course, paying on schedule, to maintain that good history. Lenders will report delinquencies to credit reporting agencies if you miss payments, which won’t improve your credit score.
However, if you make late payments, increasing your credit score in this method may backfire on you. Although individuals often apply for secured credit cards to boost their credit, if any delinquencies occur, their credit score may suffer.
Best Secured Credit Cards for Building Credit
#1. Discover it® Secured Credit Card
The Discover it® Secured Credit Card is the finest secured credit card since it has a $0 annual fee and offers rewards on purchases of 1 to 2% cash back. This unique mix of features is uncommon among credit cards for those with terrible credit, and Discover makes it even more appealing by doubling the rewards you may earn over the first 12 months of use.
For those with poor credit or no credit who wish to earn bonus points as their credit score rises, this card is a fantastic option.
#2. OpenSky® Plus Secured Visa® Credit Card
Another excellent secured credit card is the OpenSky Plus Secured Visa® Credit Card, which has no annual fee and is ideal for those with bad credit who are worried about being turned down when applying for a credit card because there is no credit check. When you apply, there isn’t a hard investigation into your credit history, so the loan’s acceptance is independent of how responsible you have been in the past. The first prerequisite for acceptance is having enough money to cover your monthly expenses.
If you wish to have a high chance of acceptance and you have extremely bad credit, think about applying for the OpenSky® Plus Secured Visa® Credit Card.
#3. Capital One Quicksilver Secured Cash Rewards Credit Card
One of the finest secured credit cards for rewards is the Capital One Quicksilver Secured, which is ideal for those looking to establish credit at a minimal cost. Cardholders receive at least 1.5% cash back on all transactions, and there is no annual fee. Additionally, the required security deposit is only $200.
If you’re searching for simple, superior rewards, think about applying for Capital One Quicksilver Secured.
#4. Citi® Secured Mastercard®
One of the best secured credit cards for beginners with bad or no credit who want a card with a low deposit and no annual fee is the Citi Secured Card. The required deposit is $200 at the very least.
The easiest Citi credit card to obtain is the Secured Card. The reviewers at WalletHub gave Citi Secured a score of 4.6/5.
If you want a card that will be simple to get accepted for and you have little or no credit history, think about applying for Citi Secured.
#5. U.S. Bank Altitude® Go Visa® Secured Card
The top secured credit card offered by U.S. Bank is the Altitude® Go Visa® Secured Card. Bank offers excellent incentives and a $0 yearly fee. With this card, you can earn 4 points for every $1 you spend on eating (including delivery and takeout), 2 points for every $1 you spend on groceries (including grocery delivery), streaming services, EV charging stations, and gas stations, and 1 point for every $1 you spend on all other transactions.
Think about applying to the U.S. If the benefits are in line with your spending preferences, apply for an Altitude® Go Visa® Secured Card.
#6. Business Advantage Unlimited Cash Rewards Secured credit card
The greatest secured business credit card currently offered is the Business Advantage Unlimited Cash Rewards Secured card. There is no yearly cost. Additionally, it offers incentives on purchases of 1.5% cash back.
The greatest candidates for this card are business owners with poor personal credit. However, there aren’t many secured business credit cards available right now, so if you want more choices, you might want to think about using a secured general-consumer card for company costs.
Overview of the Capital One Platinum Secured Credit Card
A cash deposit is required to secure your credit line on the Capital One Platinum Secured Credit Card, making it a secured credit card.
When compared to unsecured credit cards, secured cards like the Capital One Platinum Secured Credit Card may be easier to be approved for, making them a sensible solution if you need to establish credit from scratch or repair damaged credit.
The Capital One Platinum Secured Credit Card can be just what you need to improve your situation if your credit report reveals prior financial blunders, you haven’t begun to develop credit, or your score is anywhere under 600 on the FICO scale.
Pros and Cons of Capital One Platinum Secured Credit Card
Pros
- If you meet the requirements, you may begin establishing credit with a cash deposit as low as $49 ($99 or $200 minimum deposit is also available, depending on your credit score), and you will receive your security deposit back when you shut your account in good standing.
- If you require a credit card but have bad credit, there may be a chance of an easier approval process.
- Capital One informs the three credit bureaus about your financial activity, which over time may raise your credit score.
- There is no annual charge, which adds value to a card option that is already reasonably priced.
Cons
- No incentives for your purchases, which could reduce the card’s worth over time.
- If you hold a balance on this card, the continuous APR is significant and could be expensive.
The Wells Fargo Secured Credit Card: What You Should Know
The Wells Fargo Secured Credit Card could be a way to establish credit if you have low credit or no credit at all.
However, because this card is no longer offered, if you don’t already have one, you’ll need to check into alternative secured credit card possibilities. However, if you currently have a Wells Fargo Secured Credit Card, here are some things you should be aware of.
#1. It isn’t offered to brand-new applicants.
As of December 2019, applications for the Wells Fargo Secured Credit Card are no longer being accepted. A Wells Fargo representative stated that there are no plans to offer a new Wells Fargo secured credit card or to reopen the card to new applicants.
The Wells Fargo Cash Back College Card is the only credit card that Wells Fargo now offers that is intended for people who are trying to establish credit. However, that card is only intended for students who are employed.
#2. The card features Visa advantages.
The Wells Fargo Secured Credit Card comes with Visa advantages, which include rental car collision coverage, travel accident insurance and emergency help, and cell phone protection ($600 per claim on up to $1,200 per year). Secured cards normally don’t offer many benefits. You must pay your cell phone bill with your Wells Fargo Secured Credit Card in order to receive coverage.
#3. You will have access to your FICO score for information.
You can view your FICO credit score for free with the Wells Fargo Secured Credit Card without it having any negative effects. The score is updated once a month so you can monitor your development.
Keep in mind that this FICO score is only being used for education. Gaining awareness of your current situation might be beneficial while making financial decisions. However, if you ask for a loan or another type of credit card, the lender may consider alternative credit scoring models while reviewing your request. As a result, the credit score it uses may differ, which may have an impact on your loan eligibility.
#4. You can ask to have your credit limit changed.
With secured credit cards, you put down a down payment, which later serves as your credit limit. You will receive your money returned if you ever close the card or switch to an unsecured card.
Deposits ranging from $300 to $10,000 are required for the Wells Fargo Secured Credit Card. Credit limit adjustments can be requested in $100 increments. You will receive a reimbursement for the difference within 30 days if your credit limit is reduced. Your credit limit cannot be less than $300.
You can’t simply pay off your balance in full since any amount you pay over the minimum required will be applied to your following month’s payment. To fund a credit line increase, you must apply, be authorized, and make an extra deposit.
#5. Upgrading to an unsecured card is possible.
Periodically, Wells Fargo reviews secured card accounts to determine if the cardholder is qualified for an upgrade to a more conventional unsecured card. Making your case for a future upgrade can be aided by behaviors like paying your bills on time and using your credit card only as much as it will allow. There is no set timetable for making this choice.
Your credit score may improve if you keep track of it over time to the point where you might be eligible for a wider range of unsecured cards. You can look for a replacement card on your own without following Wells Fargo’s schedule. You may have more possibilities if you have a FICO score of 630 or above.
Is It A Good Idea To Have A Secured Credit Card?
A secured credit card can be a terrific alternative if you’re looking to raise your credit ratings or establish a credit history. Secured credit cards typically have easier acceptance criteria because they are backed by a cash deposit, making them more accessible to some borrowers than unsecured cards.
How Much Is The Limit On A Secured Credit Card?
Your credit limit is often determined by the amount you deposit. Deposits might start at $200 and go up to $2,500 on average. A $200 security deposit will entitle you to a $200 credit limit. You must make a larger deposit if you want a higher credit limit.
What Are Two Downsides Of Getting A Secured Credit Card?
Secured credit cards could have expensive yearly, processing, or application fees. Furthermore, these cards frequently feature high interest rates because credit card companies may anticipate high default rates from borrowers with bad credit.
Can I Put $2000 On A Secured Credit Card?
Typically, secured credit cards allow you to choose a credit limit between $200 and $2,000 per account.
How To Use A Secured Credit Card With $300 Limit?
Before you can borrow money up to the credit limit on a secured card with a $300 credit limit, you must put down a $300 security deposit.
How Long Does It Take For a Secured Credit Card Become Unsecured?
Although the time it takes for a secured card to turn unsecured varies depending on the card issuer, it normally lasts between six and 18 months. To qualify throughout this time, you must use your card properly and monitor your credit score.
In Conclusion,
Credit cards that are secured by a cash deposit are known as secured credit cards. Since they can utilize secured credit cards to raise their credit scores, borrowers with bad or limited credit histories are less risky to lend to. Secured credit cards typically have high fees and interest rates, but they can help borrowers build their credit history and gain access to cheaper borrowing options.
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