What To Look For In A Secured Credit Card
It is impossible to build or rebuild your credit unless you are able to open an account. The account must loan you money in some way, so a checking account or a debit card will not work. But when you have had serious problems with your credit in the past, it can be nearly impossible to be approved for a standard credit card.
The value of secured cards
This is where secured cards can be invaluable. A secured card works just like a standard credit card, except it requires the payment of a refundable security deposit before an account can be opened. Cardholders must make at least the minimum payment each month, and will incur interest charges when unless they pay their entire statement balance in full. Like a standard credit card, a secured card can offers valuable benefits such as travel insurance and purchase protection. And most importantly, a secured card will report your payment history to the three major consumer credit bureaus, allowing you to quickly rebuild your credit when you manage your account responsibly. In many cases, secured cardholders will qualify for a unsecured card after 12 months of making on time payments.
Picking the right secured card
Secured cards are distinctly different from standard, unsecured cards, and new applicants need to carefully examine the terms and conditions of any offer. Here are some of the key terms to understand before applying:
- Annual fee. Most secured cards will require the payment of an annual fee, although this amount can vary greatly. For example, the Capital One Secured card has no annual fee, while others can have an annual fee of as much as $49.
- Standard interest rate. Just as with any other credit card, secured card users will have to pay interest charges on any outstanding balance, and the interest rates can vary substantially between different secured cards. For example, the Primor Gold card has a low 9.99% APR fixed interest rate on purchases, while other secured cards have rates in the teens or twenties. It’s also important to note the standard interest rate not just for new purchases, but for cash advances as well as any penalty interest rate, and when it applies.
- Grace period. A card’s grace period is the time between the statement closing date and the payment due date. If a card has a grace period, then you can pay the entire statement balance in full to avoid interest charges. While a number of secured cards offer a grace period, many do not. A typical grace period is 21-25 days.
- Other fees. In addition to the annual fee, a secured card can have other fees including those for cash advances, foreign transactions, late payments, and returned payments. For instance, the Capital One Secured Card has no foreign transaction fee, while most other credit cards impose a 3% charge on all transactions processed outside of the United States.
- Benefits. Although secured cards are very basic products, some will provide benefits from the card issuer such as Visa, MasterCard, or American Express. For example, the USAA Secured Card American Express offers a collision damage waiver coverage covers physical damage and theft to most rental cars. It also offers an extended warranty policy extends your manufacturers or U.S. store brand warranties for up to one year. Furthermore, the Capital One Secured Card offers a price protection policy that can reimburse you for the difference in price on eligible item should you find a lower price for the same item within 60 days of purchase.
- Credit score information. Many credit card issuers are now offering free access to credit scores online, or printed on credit card monthly statements. Having this benefit is a great way to keep track of your credit score each month, hopefully to watch it rise. For example, the Capital One Secured Card offers its Credit Tracker app with free unlimited access to your credit score, as well as what what-if simulator and other tools.
- A path to an unsecured credit card. If the card issuer also offers unsecured credit cards, then you may eventually be able to upgrade your card after making on-time payments for several months. At that time, you will be able to receive a refund of your security deposit while continuing to hold a card from the same card issuer.
Taking a look at the big picture
The important thing about picking a secured card is to open an account soon, so that you can immediately start building your credit. Equally important is that you make every effort to make each payment on time. Secured cards represent a second chance, and the last thing you want to do is to waste that chance by making a late payment. So it is important to use any email or text alerts provided by your card.
Secured cards are an innovative product that can help you to rebuild your credit. By looking at the most important features of these cards, you can chose the best product for your needs.