How Secured Credit Cards Work
When you open a secured credit card, you're required to put down a security deposit that's held in a separate account. In the event that you don't pay the balance on your card, the deposit is used to pay off the amount owed. The amount of the security deposit varies depending on the card, but it's usually the same as the card's available credit limit.
For instance, if your credit limit on the card is $500, your security deposit would likely be $500. That said, if you want to increase your credit limit, many secured credit cards allow you to deposit additional funds into the security account. Also, many cards automatically increase your credit limit over time as you develop a positive credit history.
Aside from the required security deposit, secured credit cards function like any other card. You receive a billing statement each month that you're responsible for paying, and these payments are reported to the credit bureaus. By paying the bill in good faith each month, you rebuild or establish credit - but failure to make timely payments results in negative credit history.
The following credit cards are the best secured credit cards for building and reestablishing credit.
Capital One Secured MasterCard
Minimal Fees; Credit Limit Increases Without Additional Deposits
capital one secured mastercardThe Capital One Secured MasterCard is one of the only secured credit cards that does not charge a foreign transaction fee. Furthermore, the Capital One Secured MasterCard is one of the best secured cards because it has few fees and gives you the ability to easily qualify for credit limit increases. These increases don't require additional deposits as long as payments are on time and you stay within established credit limits.
- How the Card Works. After approval, you have 80 days to make a refundable deposit of $49, $99, or $200, depending on your creditworthiness. After making the deposit, you're issued a card with a limit of at least $200. You may increase your line of credit by making deposits to the card online or over the phone in $20 increments, up to $3,000. Each dollar deposited adds a dollar to your existing credit limit, but you may also qualify for credit limit increases based on your payment history and creditworthiness.
- Fees. The annual fee for the Capital One Secured MasterCard is $29. There is no balance transfer fee. Late payment fees are up to $19, and returned payment fees are up to $35. There is no over-limit fee or foreign transaction fee.
- APR. The APR is 22.9% for purchases and balance transfers. The APR varies with the prime rate. There is no penalty APR for late payments.
- Other Benefits. The Capital One Secured MasterCard looks like a regular credit card, but you can customize the card with an image of your choice. You also have free access to CreditInform, which includes unlimited access to Monthly Score (which enables you to track your credit score), as well as other credit tools and resources that help you manage your credit and protect yourself from identity theft.
U.S. Bank Secured Visa
Earn Interest on Your Security Deposit; Graduate to an Unsecured Credit Card
us bank secured visaThe U.S. Bank Secured Visa is a low-fee secured credit card that gives you the chance to qualify for an unsecured card after 12 months of responsible card use. Additionally, the security deposit made to the U.S. Bank Secured Visa is held in an interest-earning savings account.
- How the Card Works. Your initial deposit is used to open an interest-earning U.S. Bank savings account. The amount of your deposit is equal to the credit limit on your credit card, ranging from $300 to $5,000. You can fund your card through a checking or savings account. After responsibly managing your account for 12 months, you may be offered an unsecured credit card.
- Fees. The annual fee for the U.S. Bank Secured Visa card is $35. There's an introductory balance transfer fee of 3% or $5, whichever is greater, when you transfer a balance on your application. After that, the fee increases to 4% or $5, whichever is greater. The foreign transaction fee is 2% of purchases made in U.S. dollars, or 3% of purchases made in a foreign currency. The late payment and returned payment fees are up to $35.
- APR. The APR is 20.99% for purchases and balance transfers, an amount that varies with the prime rate. There is no penalty APR.
- Other Benefits. The U.S. Bank Secured Visa credit card does not include any extra benefits; however, it's the only secured card that enables you to earn interest on your security deposit.
Merrick Bank Secured Visa
Low APR; Credit Limit Increases Without Additional Deposits
merrick bank secured cardThe Merrick Bank Secured Visa offers one of the lowest APRs of all secured credit cards, as well as the opportunity to earn credit limit increases without depositing more money or paying additional fees. As long as you make your payments on time and stay within your credit limit, you may eventually be eligible for an unsecured card. Although it's not a well-known credit card, the Merrick Bank Secured Visa offers a lower APR and foreign transaction fee than the BankAmericard and Wells Fargo secured credit cards.
- How the Card Works. Your credit limit is equal to the amount of your security deposit - an amount between $200 and $3,000. The annual fee of $36 is deducted from the amount of credit initially available. For example, if you make a security deposit of $200, after your annual fee is deducted from your deposit, your credit limit is $164. Your account is reviewed periodically, and you may qualify for credit limit increases without any additional payments or fees.
- Fees. The annual fee is $36. Balances cannot be transferred to the Merrick Bank Secured Visa. The foreign transaction fee is 2%, and the late payment fee, over-limit fee, and returned payment fee are each up to $35.
- APR. The APR on purchases is 17.45%, an amount that varies with the prime rate. There's no penalty APR, and you cannot transfer balances to this credit card.
- Other Benefits. Merrick Bank provides access to The Money Smart Financial Education Center, which includes helpful resources for saving money, buying a home, and improving your credit score. This includes tips for using your credit card and establishing a positive credit history.
Wells Fargo Secured Card
Low Fees; Low APR; Receive a Refund of the Deposit and Transfer to an Unsecured Card
wells fargo secured visa cardThe Wells Fargo Secured card carries a lower annual fee and APR than most other secured cards. Your deposit is held in a collateral account, which doesn't earn interest, but does enable you to receive a refund of your deposit and a transfer to an unsecured credit card after positive performance with the secured card.
- How the Card Works. Your credit limit ranges from $300 to $10,000, depending on how much you deposit. Your deposit is transferred into a collateral account, where your funds are held to ensure that your credit card balance is paid. Your account is reviewed periodically, and with positive credit history, you may become eligible for an unsecured credit card and a refund of your deposit.
- Fees. The Wells Fargo Secured credit card has an annual fee of $25. Balance transfers are 5% or $5, whichever is greater. The foreign transaction fee is 3%, and the late payment fee and the returned payment fee are each up to $35.
- APR. The APR is 18.99% for purchases and balance transfers, and varies with the prime rate. There is no penalty APR.
- Other Benefits. The Wells Fargo Secured card also includes free online credit education courses and tips for managing credit. There are also tools available (such as My Spending Report and Budget Watch) that help you track your finances.