Are you looking to build or rebuild your credit? That’s smart! But, hey! Banks are not your buddy. They won’t lend you money just based on trusting that you’re an honest guy. They need proof that you will repay them. They want to see a track record where you paid your bills on time. If you never had credit cards or if your track record is not so good with paying your bills, then you will get declined for traditional credit cards. 

In the past we discussed student credit cards as a good option for beginners. This time, let’s discuss secured credit cards.

What Is A Secured Credit Card?

A secured credit card is a credit card that requires you to put down a security deposit for the bank to hold as a collateral, just in case you end up not paying your bill. The money will be placed in a special savings account and will be released to you; either if you close your credit card account, or if your card matures to an unsecured card. The money you deposit will be your credit limit. For example if you choose to deposit $500 dollars, then your credit limit will be the same $500. 

Most banks have a limit on how much you can deposit. For example, with the Discover It Secured Card you can choose to deposit from  $200 all the way up to $2,500. Some cards, though, like First Tech Credit Union Platinum Secured Card let you deposit amounts all the way to $25,000 as well. I don’t see the benefit of locking up so much money. It’s a myth to believe that higher credit limits will help you build credit faster. But in any case, let’s continue….

Does A Secured Card Help Build Credit?

Make sure to choose a secured card that will report your on-time payments to all three credit bureaus. As the months go by and you pay your bills on time, you will slowly build what’s called “credit history”. Once you hit six months of positive credit history you should find yourself with pretty decent credit. At that point, you can apply for an unsecured credit card. 

It’s important to note (as one of my readers once made this mistake) that even with secured credit cards, you still need to make payments every month. Don’t rely on the fact that the bank will already take the payment themselves from the security deposit. Banks do not touch the security deposit until they charge off the card. Until the point of a charge off your account will remain unpaid and the bank will report all late payments to the credit bureaus, just like with any other card. Obviously, that will be counterproductive to your goal of building a positive payment history.

What Will Happen With My Secured Card Once I Build Credit History?

Many secured credit card issuers will allow you to mature the secured credit card and product change it to a non-secured credit card once you passed the test and provided a good payment history. But some banks will not release your funds until you close the account. Closing your first credit card is not a good idea. That’s why I recommend that before choosing a secured credit card make sure that an account maturity is an option. This will allow you to get back your deposit without closing the accounts. 

How Do I Choose The Right Secured Card?

Almost every bank has a secured credit card option. But most of them charge an annual fee, plus give you 0 rewards on all purchases. That’s not good for two reasons. A. The annual fee will sooner or later force you to close your account. As explained above, it is not a good idea to close your first credit card. B. Why pay an annual fee for a card that gives you zero benefits? Just because you’re new to credit?

Here are some great secured credit cards which don’t charge an annual fee and have the option to mature to a non secured card. Choose one of these cards listed below and don’t go to the banks that are looking to suck out your money just because they feel you are vulnerable.

Annual feeMinimum DepositRewardsPerks
Discover It Secured$0$200 Earn 2% cashback on gas and restaurants on up to $1,000 spent each quarter. Unlimited 1% cash back everywhere else. Plus, all cashback earned the first year will be matched.No foreign transaction fees, free Fico score
Capital One Secured$0$49, $99 or $200 (the final amount will be determined by Capital One after submitting your application)No rewards on any purchasesNo foreign transaction fees, auto rental collision waiver, purchase protection, extended warranty protection 
Bank of America Secured Card$0$300No rewards an any purchasesFree Fico score
Citi Secured MasterCard $0$200No rewards an all purchasesCiti Identity theft solutions
TD Bank Secured$29$300Earn 1% cashback on all purchasesInstant Credit Card replacement

Discover It Secured

The Discover It Secured card is overall the best Secured Credit card. It can be somewhat difficult to get approved, though, if you have negative marks on your credit report. The card can mature to a non secured card after 8 months of on-time payments.

  • Annual fee: $0
  • Minimum Deposit: $200 
  • Card Rewards: Earn 2% cashback on gas and restaurants on up to $1,000 spent each quarter. Unlimited 1% cash back everywhere else. Plus, all cashback earned the first year will be matched.
  • Perks: No foreign transaction fees, free Fico score

Capital One® Secured Mastercard®

The Capital One Platinum Secured has a great benefit in which you can possibly get away with only providing a partial deposit and only have to secure a very minimum amount of $49. The card can mature to a non secured card after 6 months of on-time payments. We found that Capital One will even approve applicants with negative marks on their credit report as well. We vote this card as the best-secured card for consumers with bad credit.

  • Annual fee: $0
  • Minimum Deposit: $49, $99 or $200 (the final amount will be determined by Capital One after submitting your application)
  • Card Rewards: No rewards on any purchases
  • Perks: No foreign transaction fees, auto rental collision waiver, purchase protection, extended warranty protection 

Bank of America Secured Card

The only benefit from the Bank of America Secured card is that once you submit the application, depending on your credit file, Bank of America might even approve you for a non secured credit card. The Bank Of America Secured card can mature to a non secured card after a periodic review (I’m not sure how long that takes).

  • Annual fee: $0
  • Minimum Deposit: $300
  • Card Rewards: No rewards an any purchases
  • Perks: Free Fico score

Citi Secured MasterCard 

The Citi Secured Card does not earn rewards and also does not really have any benefits, the only good part is that there is no annual fee. The card can mature to a non secured card after about 18 months.

  • Annual fee: $0
  • Minimum Deposit: $200
  • Card Rewards: No rewards an all purchases
  • Perks: Citi Identity theft solutions 

TD Bank 

This card does charge an annual fee but might work for someone with bad credit, even if one was declined by the other secured credit cards. The card can mature to a non secured card after 7 months of on-time payments.

  • Annual fee: $29
  • Minimum Deposit: $300
  • Card Rewards: Earn 1% cashback on all purchases
  • Perks: Instant Credit Card Replacement

Good luck on getting approved for your first credit card!

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