Secured credit cards for bad credit
A bad, poor or non-existent credit score or credit history shouldn’t keep you from getting a credit card. In fact, there are great credit cards, secured credit cards for bad credit. To build or improve your credit score, we have a FREE step-by-step map to improve your credit score to help you.
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Which is the best secured credit card for bad credit?
Whether you’re brand new to credit or you’ve made a few mistakes and need to rebuild your credit, a secured credit card is a fabulous way to get on the path to a better credit score, credit history and relationship with a financial institution. Plus, many secured credit cards are great, low-cost alternatives to high APR credit cards that can keep you stuck financially.
What’s a secured credit card?
A secured credit card, like any other credit card, lets the secured cardholder make purchases on credit. A secured credit card has an available credit limit or maximum amount that the secured credit card issuer lets the secured cardholder or borrower access for purchases.
Typically, with a secured credit card, these amounts are lower when the card is first opened then grow over time as the secured credit card holder proves they can wisely use credit and pay balances off over time.
The security of a secured credit card is what makes the cards unique.
When the secured credit card applicant applies for the secured credit card, the card issuer typically requires a security deposit. In some cases, the security deposit is as low as $49 and goes as high as $5,000 depending on the amount the secured credit card applicant wants to access.
Usually, the higher the deposit or secured amount, the higher the credit line or the amount the borrower can access.
What’s the difference between thin credit vs bad credit?
Secured credit cards are great tools for individuals with either thin or bad credit to use when trying to build or repair their credit.
When someone has a thin credit file, they haven’t accessed credit before, which is often the case for younger people or those on an all-cash lifestyle. This is the case for LGBTQ people with jobs in the service and hospitality industries and who are paid tips as a major part of their take-home pay. Additionally, a recent survey showed that 50% of LGBTQ folks don’t have a checking or savings account and, for this reason, a secured credit card could be their best first choice when accessing credit.
Bad credit, on the other hand, is the result of making mistakes with existing credit. Some of the most common mistakes of bad credit are missing payments, using too much credit, applying for credit too often or frequently over a short period of time.
Should I get pre-approved?
Getting pre-approved for a secured credit card may sound odd, but it’s a smart move for someone building or repairing bad credit.
So, what does the pre-approval process for a secured credit card look like?
It’s actually the same as applying for any other line of credit. First, make sure that the secured credit card issuer has a pre-approval process. The best way to do this is to go to the website of the secured credit card issuer you’re applying to and verify there’s a pre-approval process.
A pre-approval process will help you verify if you qualify for a secured credit card without negatively impacting your credit score.
Three secured credit cards for bad credit
Below are three secured credit cards we think are the best to apply for when building or repairing your credit.
1. Capital One® Secured Mastercard®
We like this card best because, one, it doesn’t have an annual fee. If you’re building or recovering from bad credit, you want to avoid as many fees as possible.
With this Capital One card, you deposit $49, $99 or $200 with Capital One and, in return, you get a $200 line of credit. As you use the card and make payments, your credit score will reflect these payments and increase. Additionally, if you make five months of on-time payments, your access to credit will improve and your credit line will go up.
2. OpenSky® Secured Visa® Credit Card
Although this card has an annual fee, it’s a really low fee at just $35 a year. Plus, similar to the Capital One Secured Mastercard, the OpenSky® Secured Visa® Credit Card allows for a relatively low deposit of $200 and will match that as your line of credit.
The best part of the OpenSky® Secured Visa® Credit Card is the “no credit check” feature. If you have the worst credit score or no credit score at all, you’ll still qualify once you make the $200 deposit.
Finally, as you make payments, your credit file will show these payments, and you’ll see them reflected in your credit score.
3. Green Dot primor® Visa® Gold Secured Credit Card
Like the two cards above, the Green Dot primor® Visa® Gold Secured Credit Card is a great fit for bad credit. It also has a very low annual fee of $49 a year.
Similar to the OpenSky® Secured Visa® Credit Card there’s the “no credit check” feature, which is perfect if you have no credit score or a credit score below 550. Unlike the two above, this card permits much larger credit lines, although they’ll need to be matched with an equal deposit, up to $5,000.
The best feature of this card is the low-interest rate offer, which is perfect if you have a difficult time paying off your balance every month.
Secured credit card application process
You may be asking, “Why must I apply for a secured credit card?”
The application process is a hybrid between opening and funding a bank account, and opening a credit card. You’ll need to provide upfront information in the application process and then send money, as collateral, to the secured credit card company to hold and protect them from the risk of you not making your payments.
Keep in mind that these funds will not be used in case you don’t make a payment. You must still pay your full balance or minimum payment every month.
Every. Single. Month.
What are the steps for opening a secured credit card?
- Find a secured credit card that you’d like to apply for from the list above
- Ensure that you will be able to meet the funding requirements
- Apply for the selected card from the above list
- Wait for your approval
- Once approved, fund your account via your bank account with the requested amount of funding
- Receive your card within a few weeks
- Make your payments on-time once you begin using the card
What are the alternatives for secured credit cards?
For secured credit card alternatives, you have three options; debit cards, pre-paid cards and unsecured credit cards. There are other ways of accessing money, such as loans, but if you’re using a card in a variety of situations, such as travel and shopping, the cards below work.
1. Debit cards
You may be asking why a debit card would be an alternative. That’s because some debit cards have a credit option on them. This means that when you spend more money than you have in your account, you’re basically using it as a credit card and borrowing money from your bank.
Note that there will be fees for using this feature. Confirm what those fees are before using this feature.
Keep in mind, not all locations accept debit cards as a valid form of payment, such as rental car companies. Since such places require deposits, your debit card may not have access to enough available credit.
2. Pre-paid cards
Although not a true way to borrow money, pre-paid cards provide a somewhat secure way to use the money you have available in the form of a card. Most pre-paid cards have an activation fee and possibly a monthly servicing fee, so this may not be the ] optimal choice if you need access to smaller amounts of cash.
3. Unsecured credit cards
Unsecured credit cards are the traditional credit cards with which we’re most familiar. The reason we list these as alternatives is if you’re not able to qualify for a secured credit card, you may qualify for an unsecured credit card. Although, because these are reserved for those with poor or very bad credit, the fees can be hidden or very high.
Be diligent when applying for these types of cards and understand all the fees.