Which Secured Credit Cards are the Best for You?

You apply for a credit card. After 15 days, a message stating “Your application is declined” comes to your inbox. If it’s your story, you can apply for a secured credit cards.

About 6 million Americans use secured credit cards. But what are Secured Credit Cards? How is a secured card different from a regular credit card?

In simple terms, Secured Credit Cards demand an additional security deposit. But why?

You must make a one-time deposit while applying for a Secured Credit Cards. This deposit amount is the collateral you paid. 

Why do people order Secured Credit Cards? 

It helps you to improve, build, or revamp your low credit score. 

In most cases, your credit limit is equal to the security amount deposited. Usually, it starts from $200. 

After seven months, most credit card issues survey monthly credit account performance. After that, you may get an upgrade to an unsecured credit card. Your deposit will be returned as well. 

How Secured Credit Cards Work?

Primarily, Secured Credit Cards work like unsecured credit cards. Your security deposit is safe with the bank. Meanwhile, you can use the credit amount to rebuild your FICO score. 

In the US, the use of Secured Credit Cards is on the rise. 

You can choose a Discover secured credit card, a BoA customized cash rewards secured card, or a CapitalOne Card. There are other vendors of Secured Credit Cards in the US, too.

Discover demands a minimum deposit of $200 to open a secured credit card, but Wells Fargo requires a minimum deposit of $300. Meanwhile, Capital One also demands a minimum deposit of $200. 

You can select the vendor based on the benefits offered by their cards. 

Access to a Line of Credit

As I said, you will get a credit line with a secure card. However, the credit card secured credit line is variable. 

Building Credit Through Responsible Use

Two factors determine your line of credit. These are:

• How much you are willing to deposit?
• How much are you eligible to get as a credit line?

If your sanctioned amount is less, don’t worry. 

Apply for a base amount like $200 or $300. Then, use your card responsibly. 

After seven months (approx.), the card issuer will check your credit account activity and repayment history. You may be authorized to get an unsecured credit card, too, after review. Here are a few ways you can use your card responsibly to get upgraded:

• Pay back your monthly used limited on time or before the due date
• Use your credit line extensively. It shows that bank that you can use the credit line and repay as well
• Every sanguine use of the card is recorded and reflects on your FICO score 

Working Towards Qualifying for an Unsecured Credit Card

The steps to apply for secure cards are simple. You need to have an SSN. Also, your age must be more than 18. At the same time, you must hold a US domestic bank account. 

There are no minimum credit scores for applying. But your bank may turn down the application. If you have an overly damaging credit history, your application might be stalled.

Tips for Using Secured Credit Cards

It’s useless to deposit $200 and get a credit line of the same value, apparently. So, be sure of why you want it.

You will mainly need it to rebuild your damaged credit history and FICO score. 

Before you apply for credit cards secured by collateral, learn some usage tips. 

Understanding the Deposit Requirement

First, you must keep a complimentary refundable collateral amount with the bank to get the card. Secondly, you must try to make regular payments to your credit card. It will create positive credit reports against your name. 

As a result, you may be eligible for an unsecured credit card in due course.  Here, I will discuss the minimum and maximum deposit requirements of the banks that issue secured credit cards.

Monitoring Spending and Statements

Your spending rates are linked to chances of improvement in your FICO score.

So, you must monitor all factors affecting your credit performance. 

Most banks offer free daily reports and statement monitoring facilities. Discover Bank also provides real-time alerts of new inquiries or loan accounts listed to your FICO score. 

You can also track if any dark web has listed your SSN. It affects your score. 

Other banks like Capital One or BoA also offer such services. 

Using a Budget to Manage Expenses

Many of you are searching for information on how to get a secured credit card. But very few search how you can use this card judiciously. 

I recommend using the card for some fixed expenses only. You must have alternative income sources to complement the expenditures made from the card. 

But why do I tell you this?

If you make limited expenses from your card, you can track each expense easily. 

It also means that your cc usage will be organized. As a result, the chances of getting an upgraded unsecured credit card will increase in the future. 

Importance of Choosing a Card Issuer that Reports Credit Activity

 Why do you need to check credit activity?

It helps you to understand if your credit score is improving. 

So, choose a vendor who reports credit activity. For instance, Discover, Capital One, and Bank of America report credit activities. You will get notifications about all credit activities.

Benefits of Secured Credit Cards

In the long run, secured credit cards are not an actual credit line. You pay the amount you get through the credit line as collateral to the bank. 

But it will help you if your credit score is low. At the same time, you may need access to credit. And you don’t want to spend your stash, too. 

In that case, you can use a secured credit card. Firstly, you will get a credit line for your expense needs. Secondly, you could keep your savings intact. 

So, the two main benefits of applying for secired credit cards are:

• Building credit history
• Access to credit when needed

Potential for Transitioning to an Unsecured Credit Card

 As I said, your Secured Credit Cards can be transitioned to unsecured cards in the future.

Above all, it’s of no value if your collateral amount remains locked up. 

However, your bank will observe your credit account activities for approximately seven months since you get the Secured Credit Card.

You must:

• Show Consistent Repayments, 
• Recurrent use of the Credit Line and 
• Avoid Any New Loan or Credit Card Inquiry in the Meantime

After that, the bank might return your deposit value and authorize you to use an unsecured credit card. 

Conclusion

Secured Credit Cards have lower credit limits. However, you can use it to recover a damaged credit score. 

At the same time, you must treat the credit line of Secured Credit Cards as an opportunity to improve credit behavior. 

An essential tip for using Secured Credit Cards is avoiding repeated applications to multiple vendors. It can do further damage to your credit score. 

Many banks in the US offer secured credit cards. The US Bank, Third Fifth Third, and others charge a minimum deposit of $300, But banks like Discover give Secured Credit Cards a $200 minimum deposit, too.

Discover also gives Secured Credit Cards with a balance of $200 for $49 or $99. However, it depends on your credit health. 

The bottom line is to improve your credit usage. If you generate a good repayment record, your FICO score will improve. At the same time, you must avoid random credit card or loan applications while using Secured Credit Cards. 

I wish you a speedy recovery of your credit health. In the meantime, feel free to comment if you have any doubts or face any challenges.

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