Credit Cards are seen by many as a necessary evil, even after the CARD act of 2009 which regulated access to credit cards in the US, it is still incredibly easy for almost anyone to get their hands on a traditional credit card. The problem relies on the fact that most individuals are not prepared for the responsibility of dealing with a credit line and they usually overspent or simply put themselves in a bad position for not repaying their card on time….. or at all!
If you are reading this article it is very probable that you’ve had a credit card before and that your current credit score is holding you back from being able to acquire other credit products. It is important for any individual to understand that their credit score is a living organism that can change and mutate based on the situation and also on how you take care of it. Even if you have a damaged score with many scratches and dents, it will always be possible to aim for a better score if you start following a responsible and smart track.
One of the most common ways individuals aim to improve their score is by getting credit and taking care of it. The problem with this is that in reality, it is easier said than done, mostly because not many institutions will be willing to risk their money by lending it to you. One of the most straightforward ways on which you can get a credit card if your credit score has been damaged is by getting a secured card, this type of card will be covered with a collateral deposit of the card’s limit. This model allows financial institutions to de-risk and to allow individuals to gain access to credit cards again since the overall risk has been minimized to almost zero.
Keep in mind that there other options like unsecured cards with small limits under $500 that can allow you to get a card without a security deposit, but it would require at least a relatively better credit score.
There are many different reasons that can make any individual interested in a credit card besides improving their credit score, in this article we will be covering the best options available to anyone with a bad credit score. Please be aware that if your intentions are to use the card to improve your score, you should treat it just like a traditional card as it can otherwise damage your credit score even more.
What is a Secured Credit Card?
If you have had problems with your credit score over the years, it is very probable that most institutions will reject your application for any type of credit lines and especially credit cards. The core reason for this is that if you have had previous encounters with defaults and other negative situations, it is highly probable that you will fall for them once again.
Building up a credit score is not easy and it will take time and effort. A pretty common practice used to improve a credit score is to apply for a secured credit card, this type of card will allow almost all individuals to get a credit card. The main difference of this type of card is that in order to apply you will have to deposit cash as security for the total amount of your credit line. Many experts and advisors usually fight about this topic since many of them do not consider secured cards as real credit lines.
The money deposited will act as collateral and the last resort to cover all the charges and expenses of your credit card. It is extremely important to mention that even though there is money acting as collateral, you should treat these cards as if they were traditional credit cards. If you encounter problems repaying your card, you would be damaging your credit score to the point of no return. Even though it is a great way to recover a damaged score, it is key for any individual looking at it as an option, to truly respect it.
Another point worth mentioning is that in order to improve your credit score you should not only make sure to cover all the payments in time, but you should also avoid at all cost to exceed in the usage of your card. Most secured credit cards usually have a pretty tight and small limit, it is extremely important to avoid utilizing more than 30% of your max available balance at any time. This will ensure you the best path towards improving your score.
There are many reasons why an individual might be interested in getting a secured card these are some of the most common pros and cons about this type of credit card:
- Low Credit Scores can be considered: Nothing will close you more doors in life than a bad credit score, if you are standing in this situation then this might be your best option to obtain some sort of credit line. While it is not certain that you will get approved for a secured card, the odds are considerably slimmer than with a traditional credit card where your score would be key.
- Opportunity to Improve and Build your Credit Score: A credit card will help you prove that you are trustworthy with credit and that you are capable on building and following healthy habits when it comes to your personal finances. Being to access credit will help you boost your credit score faster than with most other methods. Keep in mind that there are many details used by credit companies in order to analyze how a credit card affects individuals and its credit, it is important for you to do your own research to make sure you are in compliance with all of them.
- Access to rewards and miles: If getting your credit score back on the right track is not enough for you, then accessing miles and rewards programs might be. Most financial institutions offer secured cards under their most common denomination, this will allow participating in most programs and even to get higher status like platinum cards.
- Cap on spending: If you are an individual that cant follow a budget, getting a secured credit might help you as it will ensure you won’t exceed your weekly or monthly limit. Just keep in mind that maxing any type of credit card is always a bad idea from a credit score perspective.
- The chance of achieving an unsecured card over time: This is not certain but it is common to see financial institutions rewarding their clients with fully unsecured credit cards after they’ve improved their credit score but most important when they’ve proven to be capable of managing their finances. If you are planning on ever getting your credit again you should truly consider a secured credit card as your starting point.
- High-Interest Rates and Fees: Financial institutions are here to earn money and earn money alone. You should keep this in mind if you are an individual with a low credit score as you will often find yourself having to deal with extremely expensive fees and obscenely high-interest rates. Even with collateral responding for your debt, if you incur in any type of refinance in the account you will most likely regret to have taken the new card in the first place. You should always be honest with yourself in terms of being able to afford the cost of any type of refinancing as it can result in you losing your security deposit and giving the coup the grâce to your credit score.
- You can finish destroying your Credit Score: Even if you are using your money as collateral, that does not mean you are free of not paying your cards on time. If you don’t have the capacity of paying on a constant basis for your credit cards, then chances are you should stay with cash and you should focus on improving your credit score any other way. While technically you can default on a secured card, not paying it and having the financial institution reclaim your security deposit will be just as bad to your credit score as not paying for any other traditional credit line.
- Access to Security Deposit: Your security deposit will remain out of your reach until the account has been fully closed. Keep in mind that if you are in need of getting access to your cash in the mid-term future, you might be better off staying away from secured cards. The main reason for this is that they usually take about 5 to 10 days to fully recover the funds even if the account has been fully closed. Even though this may differ from bank to bank, it is usually the standard in the market.
- Tight Limits: As mentioned before, a Secured Card will require a security deposit that will act as the collateral for the credit card balance. Even if you have $100,000 to deposit in order to get more credit room, it is important to keep mind that most institutions will have tight limits on their cards. This continues to prove the dislike of providing any type of credit to individuals with low credit scores. If you are still in need of finance a major purchase, I would recommend aiming for a secured loan (same logic but it will allow for a larger limit).
- Credit Bureau Reporting: Let’s say you’ve been approved for a secured credit card, the idea behind obtaining the card is to improve your score to apply for a more formal type of loan (Mortgage). Over a period of 2 years you’ve been taken excellent care of your card usage and your payments, this might have made your credit score rise but it is not over yet. You should always make sure to understand how this type of cards are reported to the credit agencies, the reason behind this is that a Secured CreditCard might become in a red flag for certain types of loans. Even though it is not the norm, certain institutions report secured cards with a notation where it specifies the nature of the card.
Best Credit Card For Individuals With Bad Credit Score
1. Discover – it | Overall Best Credit Card for Bad Credit
One of the most common misconceptions about secured cards is that people believe they are less than a traditional credit card. While this might be the case for certain providers, it is definitely not the situation for Discover as it presents even more benefits than most traditional credit cards.
Discover started as a payment company and has grown to become one of the most important card providers and online banks in the US. If you lean towards utilizing a Discover card you can be certain that it will probably be the overall Best Credit Card of the Market, because of their personal service and also their privileges.
If your personal goal is to improve your credit score then you should consider Discover, not only you would be able to improve your score but you will do so while enjoying from cash back on all your purchases and also great discounts. The firm understands that most individuals interested in a secured card are interested in rebuilding their credit, for this reason, it will automatically recalculate your score to let you know once you become eligible for unsecured products. The idea behind this is to allow individuals to remain under the brand of Discover, even after they’ve improved their credit enough to apply for the products of other firms.
Chances are you might want to get a card from another payment network like Visa or Mastercard, but it is important to keep in mind that Discover is without a doubt one of the very best providers and firms currently available in the US.
APR: Variable 25.24% | Intro APR 10.99% (6 months)
Credit Card Type: ***Secured***
Minimum Credit Score: Poor FICO (350 at least)
Annual Fee: $0.
2. Capital One – Mastercard – Best for Low-Security Deposits
Before talking about the credit card it is important to understand the issuer, in this case, Capital One is a well known online bank in the US. As part of their online business model, the firm offers its services to all states in the country, making it the go-to option for many individuals.
The Capital One Mastercard Secured Card is one of the best options in the market, as you already know a secured card would require a security deposit of the full amount of the card’s limit, Capital One does things a little bit different as they only charge a deposit of $49 for $200 of limit. Compared to other options in the market this credit card is a great choice for anyone truly interested in improving their credit score and also to leverage their limit.
Keep in mind that in order to unlock a higher limit you will have to wait a certain period of time. Depending on how damaged your credit score is, it might take you up to six months to prove the bank that you are indeed taking care of your credit before they allow for further credit.
If part of your plan is to apply for an unsecured card down the road, then Capital One might be your best option as the firm promotes a program to “rehabilitate Credit”.
APR: Variable 26.99%
Credit Card Type: ***Secured***
Minimum Credit Score: Poor FICO (350 at least)
Annual Fee: $0.
3. Total – Visa | Last Resort to get a Credit Card
Total is the credit card brand of the Bank of Missouri which is a relatively small bank with assets of under $1.5 billion as of December of 2018.
It is important to understand that if your plan is to get a credit card simply to improve your credit, this might be one of the only possible options where an unsecured card will be given to low credit score individuals.
You won’t be doing business with a name like Chase or Citi, and this is something you have to keep in mind as the overall service cannot be compared. You want to have access to some of the most rudimentary tools that most banks offer in the country and the reason for this is the actual size of the bank. The overall service might not be bad, but it is simply basic and plain.
After doing some research it was easy to find that almost 92% of all applications are accepted, but the approval rating and the overall review was terrible. Most individuals had problems with their cards since the very beginning. Even though the firm uses a Visa membership, it has become known for scammers that this type of cards do not have high-security mechanisms and are usually targeted for that same reason.
APR: Variable 34.99%
Credit Card Type:***Unsecured***
Minimum Credit Score: Poor FICO (500 at least)
Annual Fee: $75
Additional Fees: One Time Program Fee $89
4. Open Sky – Visa |Best Card for Credit Building
OpenSky is not as famous as some of the brands from this list, but it is important to understand that this is a firm that takes pride in giving individuals a second chance to help their credit score. This might be one of the only places where you would be able to get a credit card without even a credit check, the reason for this is that all individuals will be considered as if they had the worst possible credit score.
It’s important to mention that this is a company that will report directly to the top 3 major credit bureaus and not simply to FICO as some others do. The firm understands deeply that their business is not only to lend credit but to allow for individuals to change their credit score and with it their lives.
APR: Variable 19.64%
Credit Card Type: ***Secured***
Minimum Credit Score: Poor FICO (350 at least)
Annual Fee: $35
5. Deserve – MasterCard | Best For International Students
Deserve offers credit cards for individuals that otherwise would have a hard time getting one. The main target of the company are individuals with either a relatively low credit score or simply an unexisting one, hence why these cards are so popular for international students living in the US.
This is a firm that will help you build credit if you don’t have one, and will also improve yours if it has been previous damage. The core of the company is to provide a service very similar to what Discovery offers but without even having to request a Social Security Number.
Since the firm will report directly to the 3 major credit bureaus in the US, this might be your best option to start building credit if you have recently moved to the Country.
APR: Variable 24.99%
Credit Card Type: ***Unsecured***
Minimum Credit Score: Fair FICO (650 at least)
Annual Fee: $39
Even though certain individuals might want to get secured cards in order to get access to the benefits of a credit card without the full responsibility, it is imperative to treat them just like any unsecured card. The reason for this is that when it comes to credit bureaus, it will affect your credit score just as much as a regular credit card would.
While getting a card sounds like a good option to improve your credit score, it is not the only path. Disregarding how bad or how great your score is, there are many ways one can choose to improve a credit score. The best advice I can give you is to take your time and analyze your current situation, including your finances and also any type of debt you might be still holding in order to make any desition based on the whole picture.
Having a bad credit score might be your presentation card when it comes to a financial institution but it should not define who you are an individual. Never forget that just like you can change your life if wanted, you can do a lot to improve your credit score and get a fresh start. This process might not be easy and fast, but it certainly is full of benefits if you have what it takes to embark in the journey.
Yes! But it is not as easy as it sounds. You should always keep in mind that fixing a credit score is not about showing you are capable of maintaining proper management of your finances over a short period of time but in the long run. This is something that will take time and effort from your side to truly work.
While a Secured Credit Card is a great starting point, it should also be considered as an option once you are comfortable with your finances and you know you have the capability of sustaining your finances outside of using cash. One of the key elements of succeeding and improving a credit score with a credit card is to never exceed the usage or to max the available funds at any point. Failing to do this will only result in even further damage to your credit score as it will raise flags to your financial situation and your necessity of more money to sustain your lifestyle.
Even if it sounds difficult to understand, sometimes the less you need credit the better it will be. The reason for this to work this way is that it proves that you are liquid enough of not needing to access credit in order to sustain your spending.
Keep in mind that this will differ from institution to institutions, but in most cases, you will be asked to cover 100% of the credit line. This means that if you have a limit of $3,000 on a secured credit card you would be asked to deposit the same amount as collateral.
Most institutions will not even issue a secured card over $5,000 and in rare occasions up to $10,000. If you are in need of a higher credit line you might want to look into other security instruments like secured loans.
Your deposit will be kept until the account has been closed and all the balance of the card has been paid in full. Please note that even if the card has been paid entirely and the account has been closed, certain institutions might take up to to 5 business days or one week before they unlock the funds. It is important to ask this question directly with your card provider in order to be on the same page and to manage expectations accordingly.
This is another question where the answer will be tight to the issuer of the card. While certain institutions will no give a credit card to anyone under a “Good” FICO category, other names will even issue cards for individuals with very “Poor” FICO Scores. Take your time to review all your options before choosing a credit card provider.
*** While reviewing cards for this article I found that on Average an individual with a Score above 350 will be able to access some sort of secured card. ***
Keep in mind that a secured credit card will work just like a regular credit card, this means if you carry a balance on them you will pay interests on it. Keep in mind that the biggest changes when it comes to the interest rates is that due to the high risk of your profile you will be charged with incredibly high rates.
If you are using a secured card as a method to build and improve your credit score it is recommended to avoid leaving balances as you will affect your credit and you will have to pay these obscene rates.