Best Secured Credit Cards to Build Credit

Building or rebuilding credit can feel like an uphill battle. If you have a limited credit history or a damaged credit score, it can be difficult to qualify for traditional credit cards with attractive rewards and low interest rates. This is where secured credit cards come in. Secured credit cards are designed to help individuals with less-than-perfect credit establish or re-establish a positive credit history. They require a cash deposit as collateral, which typically serves as your credit limit. This reduces the risk for the card issuer, making it easier for you to get approved. In this comprehensive guide, we’ll explore the best secured credit cards available, highlighting their features, benefits, and how to choose the right one for your specific needs.

Understanding Secured Credit Cards

Before diving into specific card recommendations, let’s clarify what a secured credit card is and how it works.

What is a Secured Credit Card?

A secured credit card is a type of credit card that requires you to provide a cash deposit as security. This deposit protects the card issuer in case you default on your payments. The deposit typically determines your credit limit – for example, a $500 deposit often results in a $500 credit limit. Unlike prepaid cards, secured credit cards report your payment activity to the major credit bureaus (Experian, Equifax, and TransUnion), which is crucial for building credit. Think of it as a safety net for the lender and a pathway to better credit for you.

How Secured Credit Cards Help Build Credit

The key to building credit with a secured credit card lies in responsible usage. Here’s how it works:

• Payment History: Your payment history is the most significant factor in your credit score. By making on-time payments each month, you demonstrate responsible credit management.
• Credit Utilization: Credit utilization refers to the amount of credit you’re using compared to your credit limit. Experts recommend keeping your credit utilization below 30%. For example, if you have a $500 credit limit, try to keep your balance below $150.
• Credit Mix: While not as crucial as payment history and credit utilization, having a mix of credit accounts (e.g., credit cards, loans) can positively impact your credit score. A secured credit card can contribute to this mix.
• Length of Credit History: The longer you’ve had credit accounts open (and in good standing), the better it is for your credit score. Opening a secured credit card and keeping it open for a long time, even after you’ve upgraded to an unsecured card, can be beneficial.

Key Features to Look For in a Secured Credit Card

When choosing a secured credit card, consider the following features:

• Annual Fee: Some secured credit cards charge an annual fee, while others don’t. Look for a card with a low or no annual fee to minimize costs.
• Interest Rate (APR): While you should always aim to pay your balance in full each month, it’s still important to consider the interest rate. A lower APR can save you money if you occasionally carry a balance.
• Credit Reporting: Ensure the card reports to all three major credit bureaus (Experian, Equifax, and TransUnion). This is essential for building a comprehensive credit history.
• Minimum and Maximum Deposit: Check the minimum and maximum deposit requirements to ensure they fit your budget and desired credit limit.
• Graduation Path: Does the card offer a path to upgrade to an unsecured credit card after a period of responsible use? This is a desirable feature.
• Rewards and Benefits: Some secured credit cards offer rewards programs, such as cash back or points, although these are less common than with unsecured cards. Look for any additional benefits that might be valuable to you.

Top Secured Credit Cards to Consider

Now, let’s explore some of the best secured credit cards available, along with their key features and benefits. Remember to compare these options carefully to determine which card best suits your individual needs and financial situation.

1. Discover it® Secured Credit Card

The Discover it® Secured Credit Card is consistently ranked as one of the best secured credit cards on the market. It offers a combination of valuable features, including cash back rewards, no annual fee, and a path to graduation to an unsecured card.

Key Features:

• Cash Back Rewards: Earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus, earn unlimited 1% cash back on all other purchases.
• No Annual Fee: Enjoy the benefits of this card without paying an annual fee.
• Credit Reporting: Reports to all three major credit bureaus.
• Graduation Path: Discover automatically reviews your account after 7 months to see if you qualify to graduate to an unsecured card and get your deposit back.
• Minimum/Maximum Deposit: Minimum deposit of $200; maximum deposit typically matches your approved credit limit.
• Introductory APR: 0% intro APR on purchases and balance transfers for 6 months.
• Other Benefits: Free FICO® Credit Score online and on monthly statements, $0 fraud liability.

Pros:

• Cash back rewards are a significant advantage compared to many other secured credit cards.
• No annual fee makes it a cost-effective option.
• Relatively easy to get approved, even with limited credit history.
• Automatic reviews for graduation to an unsecured card.
• The introductory APR offer can be helpful for managing existing debt.

Cons:

• The cash back categories (gas stations and restaurants) might not align with everyone’s spending habits.
• The minimum deposit requirement of $200 might be a barrier for some.

2. Capital One Platinum Secured Credit Card

The Capital One Platinum Secured Credit Card is another popular choice for building credit, particularly because it offers a lower deposit requirement than some other secured cards.

Key Features:

• Lower Deposit Requirement: You may be able to get a credit line with a deposit as low as $49, $99, or $200, depending on your creditworthiness.
• No Annual Fee: No annual fee to worry about.
• Credit Reporting: Reports to all three major credit bureaus.
• Automatic Credit Line Reviews: Capital One may automatically review your account for a credit line increase after making your first six monthly payments on time.
• Minimum/Maximum Deposit: Varies based on creditworthiness; typically $49, $99, or $200 for a $200 credit line.
• Other Benefits: Access to CreditWise from Capital One, a free tool that helps you monitor your credit score and report.

Pros:

• Lower deposit requirement makes it more accessible to individuals with limited funds.
• No annual fee.
• Potential for credit line increases after responsible use.
• Access to CreditWise for credit monitoring.

Cons:

• Doesn’t offer any rewards program.
• The deposit amount required varies based on individual creditworthiness.

3. OpenSky® Secured Visa® Credit Card

The OpenSky® Secured Visa® Credit Card stands out because it doesn’t require a credit check to apply. This can be a significant advantage for individuals with very poor credit or no credit history.

Key Features:

• No Credit Check: No credit check required to apply.
• Reports to All Three Bureaus: Reports your payment history to Experian, Equifax, and TransUnion.
• Minimum/Maximum Deposit: Minimum deposit of $200; maximum deposit of $3,000.
• Online Account Access: Manage your account online.

Pros:

• Accessibility for individuals with very poor credit or no credit history.
• Relatively high maximum deposit allows for a potentially larger credit line.

Cons:

• Annual fee of $35.
• Doesn’t offer any rewards program.
• Higher interest rate compared to some other secured cards.

4. First Progress Platinum Prestige Mastercard® Secured Credit Card

The First Progress Platinum Prestige Mastercard® Secured Credit Card is another option for those looking to build credit, offering a relatively low interest rate compared to some other secured cards.

Key Features:

• Low Interest Rate: Relatively low APR for a secured credit card.
• Reports to All Three Bureaus: Reports your payment history to Experian, Equifax, and TransUnion.
• Minimum/Maximum Deposit: Minimum deposit of $200; maximum deposit of $2,000.
• Online Account Management: Convenient online access to manage your account.

Pros:

• Lower interest rate can save money if you occasionally carry a balance.

Cons:

• Annual fee of $49.
• Doesn’t offer any rewards program.

5. Self – Credit Builder Loan + Secured Visa® Credit Card

Self offers a unique approach to building credit by combining a credit builder loan with a secured credit card. This can be a good option for individuals who want a structured approach to credit building.

Key Features:

• Credit Builder Loan: You make fixed monthly payments on a credit builder loan, which are reported to the credit bureaus.
• Secured Visa® Credit Card: After building some credit with the loan, you can unlock a secured Visa® credit card with a credit limit equal to the amount you’ve saved.
• Reports to All Three Bureaus: Both the loan and the credit card activity are reported to Experian, Equifax, and TransUnion.
• FDIC-Insured Savings: Your loan payments contribute to an FDIC-insured savings account.

Pros:

• Structured approach to credit building with the credit builder loan.
• Combines saving and credit building.
• Helps build both payment history and savings habits.

Cons:

• Requires making loan payments before unlocking the secured credit card.
• The interest rate on the loan can be relatively high.
• Fees may apply.

How to Choose the Right Secured Credit Card

Selecting the right secured credit card depends on your individual circumstances and priorities. Here’s a step-by-step guide to help you make the best decision:

1. Assess Your Credit Situation

Before applying for any secured credit card, take some time to understand your current credit situation. Obtain a copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion). You can get a free copy of your credit report annually from AnnualCreditReport.com.

Review your credit reports carefully for any errors or inaccuracies. If you find any, dispute them with the credit bureau that issued the report. Correcting errors can potentially improve your credit score.

Also, check your credit score. Many credit card issuers and financial institutions offer free credit scores to their customers. Understanding your credit score will help you determine which secured credit cards you are most likely to be approved for.

2. Determine Your Budget and Deposit Amount

Consider how much you can comfortably afford to deposit as collateral for the secured credit card. Remember that the deposit typically determines your credit limit, so choose an amount that allows you to make purchases while keeping your credit utilization low.

Also, factor in any potential annual fees or other charges associated with the card. Select a card that fits within your budget and offers the features that are most important to you.

3. Compare Card Features and Benefits

Carefully compare the features and benefits of different secured credit cards. Pay attention to the following factors:

• Annual Fee: Opt for a card with a low or no annual fee whenever possible.
• Interest Rate (APR): While you should aim to pay your balance in full each month, consider the interest rate in case you occasionally carry a balance.
• Credit Reporting: Ensure the card reports to all three major credit bureaus.
• Minimum/Maximum Deposit: Choose a card with deposit requirements that align with your budget.
• Graduation Path: Look for a card that offers a clear path to upgrading to an unsecured card.
• Rewards and Benefits: Consider any additional rewards or benefits that might be valuable to you.

4. Read Reviews and Testimonials

Before making a final decision, read reviews and testimonials from other users who have used the secured credit cards you’re considering. This can provide valuable insights into the card’s performance, customer service, and overall satisfaction.

Look for reviews on reputable financial websites and forums to get a balanced perspective.

5. Apply for the Card That Best Fits Your Needs

Once you’ve carefully considered all the factors, apply for the secured credit card that best fits your needs and financial situation. Be sure to provide accurate information on your application and meet all the eligibility requirements.

After you’re approved for the card, use it responsibly by making on-time payments and keeping your credit utilization low. This will help you build a positive credit history and improve your credit score over time.

Tips for Building Credit with a Secured Credit Card

Using a secured credit card is a powerful tool for building or rebuilding credit, but it’s essential to use it responsibly. Here are some tips to maximize your credit-building efforts:

1. Make On-Time Payments

Payment history is the most critical factor in your credit score. Always make your payments on time, every time. Consider setting up automatic payments to ensure you never miss a due date.

Even one late payment can negatively impact your credit score, so prioritize paying your credit card bill on time above all else.

2. Keep Credit Utilization Low

Credit utilization is the second most important factor in your credit score. Aim to keep your credit utilization below 30%. For example, if you have a $500 credit limit, try to keep your balance below $150.

Ideally, you should pay off your balance in full each month to avoid interest charges and maintain a low credit utilization ratio.

3. Monitor Your Credit Report Regularly

Monitor your credit report regularly to track your progress and identify any errors or inaccuracies. You can get a free copy of your credit report from each of the three major credit bureaus annually from AnnualCreditReport.com.

If you find any errors, dispute them with the credit bureau that issued the report. Correcting errors can help improve your credit score.

4. Use the Card for Small, Recurring Purchases

To build credit effectively, use your secured credit card for small, recurring purchases that you can easily pay off each month. This demonstrates responsible credit management and helps build a positive payment history.

Examples of recurring purchases include gas, groceries, or streaming subscriptions.

5. Avoid Cash Advances

Cash advances typically come with high interest rates and fees, and they don’t contribute to building credit in the same way as regular purchases. Avoid using your secured credit card for cash advances whenever possible.

6. Be Patient

Building credit takes time and consistency. Don’t expect to see significant improvements in your credit score overnight. Continue using your secured credit card responsibly over time, and you’ll gradually build a positive credit history.

Transitioning to an Unsecured Credit Card

The ultimate goal of using a secured credit card is to build enough credit to qualify for an unsecured credit card with better terms and rewards. Here’s how to transition from a secured card to an unsecured card:

1. Monitor Your Credit Score

Regularly monitor your credit score to track your progress. Once your credit score reaches a certain threshold (typically in the fair to good range), you may be eligible for unsecured credit cards.

2. Check Your Card’s Graduation Policy

If your secured credit card issuer offers a graduation path to an unsecured card, check the policy to see what the requirements are. Typically, you’ll need to have a good payment history and a satisfactory credit score.

3. Apply for an Unsecured Credit Card

Once you believe you’re eligible, start applying for unsecured credit cards. Compare different cards and choose one that offers the best terms and rewards for your spending habits.

4. Close or Keep Your Secured Card

After you’re approved for an unsecured credit card, you have the option to close your secured credit card or keep it open. Closing the secured card will release your deposit, but keeping it open (with a zero balance) can help maintain your credit utilization and length of credit history.

Consider your individual circumstances and credit goals when making this decision.

Alternatives to Secured Credit Cards

While secured credit cards are a popular and effective way to build credit, there are other options available as well. Here are some alternatives to consider:

1. Credit Builder Loans

Credit builder loans are designed specifically to help individuals with limited credit history establish credit. You make fixed monthly payments on the loan, and the payments are reported to the credit bureaus. The funds from the loan are typically held in a savings account until the loan is paid off.

2. Authorized User on a Credit Card

Becoming an authorized user on someone else’s credit card can help you build credit, as long as the primary cardholder has a good credit history and makes on-time payments. However, you’re not responsible for paying the bill as an authorized user, so it’s crucial that the primary cardholder is responsible with their credit.

3. Secured Loans

A secured loan is a loan that is backed by collateral, such as a car or a savings account. Making on-time payments on a secured loan can help you build credit.

4. Rent and Utility Reporting Services

Some companies offer rent and utility reporting services that report your on-time rent and utility payments to the credit bureaus. This can help you build credit without using a credit card.

Conclusion

Building or rebuilding credit is a journey that requires patience, discipline, and the right tools. Secured credit cards can be a valuable asset in this process, providing a pathway to establish or re-establish a positive credit history. By understanding the key features of secured credit cards, comparing different options, and using your card responsibly, you can effectively build credit and achieve your financial goals. Remember to choose a card that fits your budget, offers the features you need, and reports to all three major credit bureaus. With consistent effort and responsible credit management, you can improve your credit score and unlock access to better financial opportunities in the future.