Before we make recommendations for the best secured credit cards for 2021, we want to make sure you are aware why we think secured cards are a great credit building tool.
A secured credit card is a type of card targeted mainly to high risk individuals with bad or no credit. The purpose of a secured credit card is to allow the individual access to a credit card while helping them build or rebuild their credit score.
Secured credit cards are “secured” by a bank deposit account that is owned by the cardholder. When you open a secured card, you will be required to open one of these accounts to provide collateral. Your credit limit will usually be equal to the amount you deposit, although it may be higher or lower, depending on your risk.
Secured cards differ from prepaid cards in some key ways:
- They are credit cards – not debit cards. You can get a secured card that reports to the credit bureaus. This will help build your credit score.
- You pay the card at the end of your billing cycle, not in advance of making purchases.
- It is easier to find secured credit cards with reasonable fees. However, you still need to check the fine print to avoid scams.
Recommended Features of a Secured Credit Card
We recommend shopping around for a secured credit card with these key features:
- Low or no annual fee.
- No monthly fees or “insurance charges”.
- No interest interest charges until after your billing cycle closes (typically 25 days).
- Reports payments to all three credit agencies monthly.
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Top Secured Credit Cards
CapitalOne Secured MasterCard: Best Secured Credit Card of 2021
- $49, $99 or $200 Security Deposit – Depending on Creditworthiness
- $200 – $3,000 Credit Line, plus opportunity to earn an unsecured line
- Reports to all 3 credit bureaus
- MasterCard benefits like extended warranties, price protection, and car rental insurance
- $0 Fraud Liability
- 24/7 Customer Service
- Credit Score Tracking
- $0 Annual Fee
- 24.99% APR on Purchases, Transfers and Cash Advances
- Purchase APR commences 25 days after closing of your billing cycle
- Cash Advance Fee is greater of $10 or 3%
- Late Payment Fee is up to $35
- All APRs listed are variable based on the Prime Rate
* Please note that all of these cards are prone to carry additional fees for lost cards, additional cards, etc. The fees cited above highlight the key fees you need to be aware of. However, we recommend that you review all disclosed fees before applying for any credit card.
More Information About Secured Cards
Secured credit cards are often the only option for people with very bad or no credit history. The problem is very high fees and costs are associated with them. For example, you’re often required to pay a high annual fee, along with a sign up fee or program fee. Sometimes you’ll end up paying up to $250 montly just to use the card.
Credit cards offer tremendous benefits. It’s difficult to rent a car, book a hotel room, or shop online without a credit card. Additionally, better cards provide perks such as warranty protection, cash rewards, and special offers.
By starting with a secured credit card, you can begin to build a strong financial future. If you make timely payments, some secured credit card companies will even increase your credit limit without asking for a larger deposit. As your credit score rises, they may convert your card into an “unsecured” card. It’s a safe and easy way to build your credit.
If you’re looking for a good secured credit card make sure you read all the terms. Look for any fees associated with the card, including sign up fees, usage fees, and annual fees. Check the APR and make sure it’s not unreasonable. Usually with a secured credit card you can get an APR of 9.99% or less.
It’s also important to understand how much money you’ll need to initially deposit, and what percentage of your credit limit this will be (from 10% to 100%).
Secured credit cards can be a great way to help you rebuild your credit in the long run. And we think this possibility makes the fees worth it to you.
Secured cards commonly report often to all credit bureaus, so if you make on-time payments you’ll see an improvement in your credit over time. Secured cards also give you the convienence of being able to make credit card purchases at stores and online.
Warning About Your Payments
In the case that you fail to make your payments and default on your account, the card issuer is be entitled to recover the money from the deposit account. Be warned, though, that in most cases individual missed payments are not automatically taken from the deposit account. That course of action is usually reserved for severe delinquencies or if the credit account is closed.
This can be problematic to the cardholder if they have trouble making payments because the card will add up interest and late fees before the deposit money is used. It’s even possible that the amount owed to the card issuer will exceed the amount in the deposit account, causing even more debt.
So do not assume the card issuer will automatically debit your deposit account for payment.
Why Not Use an Unsecured Card?
If you are looking for an unsecured credit card to help build or rebuild your credit, check out our Guide to Best Cards to Rebuild Your Credit.
One warning when shopping for these unsecured cards: Keep an even sharper eye out on the fees and charges. Some card issuers may even try to charge you interest on purchases from the date of purchase (and not after the closing of your billing cycle)! This will make every purchase you make turn into an expensive short term loan.
Plus, unsecured cards for “high risk” consumers contain all sorts of other hidden fees. They may even try to charge you for making payments.
Consider carefully when choosing a secured credit card to ensure it makes sense for you and that the fees are affordable.
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Editor’s Note: To learn more about factors to consider when applying for or using a credit card, visit the website of the Consumer Financial Protection Bureau.