Whether you are just starting out and have no established credit history, or you are coming out of a bankruptcy, a secured credit card may be the best and only viable option afforded to you at first. As someone who had to take this route personally nearly a decade ago, I can honestly say it was the best thing that ever happened to me regarding credit.
At the time I was starting my rebuilding journey, there were far less options available in the marketplace. Today, I share the top 5 secured credit cards for those with no or limited credit history.
Discover IT Secured Card
Discover often is thought of as the forgotten brand in the world of Visas, Mastercards, and American Express, however it’s It card provides real value. The secured card offers no annual fee, and provides 2 percent cash back at gas stations and restaurants on up to $1,000 in purchases per quarter, along with 1 percent cash back on everything else.
You don’t want to carry a balance month-to-month on this card, otherwise you will be looking at an annual percentage rate in the ballpark of 24.99%, however you can build or rebuild credit history, and you can get started with a refundable deposit of at least $200 after approval. Discover will review your account history, and inside of the first year of having the card, they may transition you to a traditional unsecured card, while returning the deposit to you.
Capital One Secured Mastercard
This was the card I started with on my rebuilding journey, and not much has changed. The barrier of entry to Capital One’s ecosystem appears to be a bit easier than Discover, and as long as you haven’t burned them in the past, you should be able to gain approval. The Capital One Secured Mastercard has no annual fee, and based on your application, your initial deposit could potentially be only $49 with a starting limit of $200.
Mastercards are accepted virtually everywhere, and when I began my rebuilding, I used this card solely for renting a car or a hotel room. You can’t get in much trouble with $200, so I had to pay the balance off almost immediately. After five monthly payments made on time, your account will be eligible for an increase, which I saw, as mine went from $200 to $500, and then to $1,500 by the end of the first year. You won’t want to carry a balance on this card either, as the annual percentage rate hovers around 26.99%.
Green Dot primor Visa Classic Secured Credit Card
You may have heard of Green Dot, however were unaware they were in the credit card business. If you are rebuilding credit, consider the primor Visa Classic, as it offers a few options the previous cards do not. First, if you do end up carrying a balance over from month to month, the annual percentage rate will be 13.99%, nearly half of the Discover and Capital One products. There is a $39 annual fee on the card, however you can deposit up to $5,000 for a starting limit. One of the biggest drawbacks is that this card does not earn any points or rewards for purchases.
Navy Federal nRewards Secured Credit Card
Navy Federal Credit Union’s credit cards, whether secured or unsecured, are among the most attractive of any on the market. Consider the nRewards Secured Credit Card, which offers 1 point for every $1 you spend, and no limit on the total number of points you can earn. With those points, you can redeem them for statement credit (which will apply towards your balance on your bill), gift cards, or cash. There is no annual fee for the card, and your annual percentage rate will likely come in around 18%. Accounts are reviewed to potentially become unsecured after six billing cycles, and you can open the card with a deposit of at least $200.
Citi Secured Mastercard
Coming in at number one this Fall is the Citi Secured Mastercard. Citi has done a great job competing in the credit card space, and for those with limited or no credit history, this card could be ideal for you. A $200 minimum deposit which is fully refundable gets you started, although just because you are able to place funds down does not guarantee approval. If you have filed a bankruptcy in the past two years, you will be ineligible for the Citi Secured Card. That makes this card best for those with no or limited history.
The Citi Secured Mastercard offers no annual fee, and in the event you have to carry a balance over, the annual percentage rate is competitive at 24.49%. You can easily manage your account on Citi’s app.
You want to ensure you place the maximum amount you can afford to as your initial deposit on the card you select, as you won’t be able to add more after your account is open. As a reminder, a secured credit card for many is the very first step in their credit building or rebuilding journey. You should not ideally keep this card as your sole credit for longer than 12 months, as after you begin to have positive payment history and a zero/low balance relative to your limit report on your credit, your score should begin to rise. For many, inside of the first year, the issuer of their credit card will unsecure the account, returning the initial deposit, and in turn increasing their limit.
Always use credit cards responsibly, no matter if you have a $200 or $20,000 limit. Never, ever, ever spend more than what you can afford to payback within 30 days. I, like many Americans, made this mistake, and it can lead to a snowball effect financially that you are not prepared to handle.
If you are unsure whether you need to apply for an unsecured or a secured credit card, take time to understand your FICO score before submitting any applications. Your FICO score takes into account your creditworthiness, and is the most recognized credit scoring model. The three major credit reporting agencies (Equifax, Experian, Trans Union) provide a scoring model that ranges from 350-850. Below is a look at the tiers of credit based on score:
Very Good 720-799
Poor Below 599
You may be able to get approved for credit with a score below 600 (I recall I did at times), however it certainly is not a given, and if you do, it will be at terms that are unfavorable. A secured credit card is a great option for those starting out or on the road to rebuilding.