How to choose the best secured credit card? 7 key factors

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Society is rapidly moving towards being cashless, where physical money will be a thing of the past. Instead, people will be able to pay anywhere and anything using cards, including debit and credit cards. Now, credit cards are usually a much better version, as they can improve your credit score and allow you to spend money you don’t yet have. The only problem with them is that users need a high credit score to be considered trustworthy and be issued a regular credit card.

If, on the other hand, your credit score is too low, the only options available to you are to use debit cards (which do not impact your credit score) or to turn to credit cards. secured. These are the cards people with lower credit scores can get, but the catch is that they have to pay a deposit first which will act as collateral. The size of this initial deposit will generally determine the line of credit the user will receive. The advantage of secured credit cards is that they can, in fact, improve your credit score over time if used responsibly.

However, there are some aspects you should consider before applying for a secured credit card. Seven of them, in fact, and these are the main factors that will be discussed today.

1. Do they report your account activity?

The first thing to pay attention to when selecting an issuer for your secured credit card is whether or not the issuer discloses your information, such as payment history, balance, etc., to the three major credit bureaus. The bureaus in question include TransUnion, Equifax and Experian, and it is in your interest that they report your data.

Assuming you have used your secured credit card responsibly, these reports will have a positive effect on your credit score, potentially allowing you to apply for and receive an unsecured credit card, as a trusted user. . So that means you shouldn’t choose a lesser-known card issuer, even if they offer fees like low or no fees, because the long-term effect on your credit score is your real goal.

2. How much will it cost you?

The second big thing to consider is the cost of a secured credit card. Quite often, these cards may come with an annual fee that yields nothing of value in return. However, it is possible to find cards with no fees, which is usually possible if you go to the major card issuers.

There’s also the third option – cards that charge an annual fee, but you get something in return, like a lower interest rate. For example, one of the popular cards is the First Progress Platinum Prestige Mastercard Security credit card. It comes with a $49 fee, but it also has a variable APR of 12.24%.

Such offers are rare, however, and more often than not, a card with an annual fee will really have nothing to offer in return. It’s hard to be picky when you only have one option that differs slightly from issuer to issuer, which is why it’s extremely important to identify the best deal you can find. .

3. The duration of the grace period

You’ve probably heard of the grace period — the time between your statement date and the due date. This is the period during which your interest will not begin to accrue, as long as you pay off your last month’s statement balance in full by the end of the month.

Not all secured credit cards have a grace period, and if you choose one that does not, your purchases will begin to accrue interest as soon as the transaction is completed. This means that selecting a card without a grace period is going to get very expensive very quickly, which is why you should definitely keep an eye on this.

Luckily, most secured credit cards have it, at least when it comes to those from major card issuers, which again means it pays to compare cards and choose from one offered by a large company. Finally, remember that even with a grace period, you shouldn’t be too relaxed, because missing your payment even by one day could lead to a significant increase in expenses.

4. How much is the security deposit?

We mentioned the security deposit — the deposit you need to make, which will then serve as your security. Well, that same deposit is the biggest downside of secured credit cards. Most people who have low credit scores or who are new to credit, in general, don’t have a stack of cash lying around.

Also, the security deposit will be blocked until you close your card or upgrade it. In other words, you won’t get that money back for months or even years until you’re done with the card. So with that in mind, it is very important to choose a card based on the affordability of the deposit.

Typically, cards come with a deposit that can be as low as $200 to $300, and your credit limit will be about the same. The Capital One Platinum Secured Credit Card, which offers an initial deposit of just $49, depending on your credit strength, stands out, however.

Another thing to remember is that a lower credit limit makes it more difficult to maintain a good credit utilization rate, as you are advised to only use 30% of your credit line for the best impact. on your overall credit score.

5. Upgrading your card to an unsecured card

Then another thing you need to keep in mind is that the goal is to improve your credit score so that you can eventually upgrade to an unsecured credit card or apply for one from scratch. While it’s cleaner and faster to apply for an unsecured credit card once your credit score is good enough for it, some users may prefer an upgrade.

That said, there are card issuers that allow you to upgrade, such as Discover it Secured, which allows you to gradually upgrade to an unsecured account. You will then be able to recover your initial deposit. Another issuer that does this is the Capital One Quicksilver Secured Cash Rewards Credit Card, although they don’t advertise it.

That said, having a secured card can be handy for the future, simply because you can switch to a new credit card and also transfer your credit limit to the new card.

6. Will your application be approved?

Now the big question is whether your application will even be approved or not. The way the offer was made, it looks like anyone can get a secured credit card. After all, the deposit you make should make the card issuer feel secure enough not to have any trouble with it. However, it can still happen that card issuers simply decline your request.

This can happen if your income or credit history does not meet their requirements. Capital One has been known to reject requests if you’re behind on another Capital One account, for example. Also, if your credit report shows bankruptcy, no one will expect you to be able to pay for a credit card, so if you’ve had such issues, they need to be sorted out first. This means having to wait for a certain period after the release date for all reports to reach their destination and for your financial data to be updated to the current state.

So when you start choosing a card, be sure to check that the card issuer has a pre-approval process that will give you an idea of ​​the requirements and your chances of being approved.

7. What advantages does it offer?

Finally, you should also consider the benefits you get with your secured credit card. Most important is the ability to build your score and improve it, in general. However, it also doesn’t hurt if there are additional benefits, such as rewards and other perks.

Take the example of the Capital One Quicksilver Secured Cash Rewards credit cards, which offer 1.5% cash back on all purchases you make. Some cards offer cashback on payments at hotels and restaurants, or they have no annual fee, and sometimes you can even find an issuer that lets you get your deposit back without closing the account. However, this is very rare and only available on the Capital One Quicksilver card.

Different cards have different benefits, so be sure to check all the details about them.

Final Thoughts

So if you need a holy credit card to build up your credit history or rebuild it after an unexpected drop, you need to avoid the urge to simply accept the first offer that comes your way. Do your research, explore the different options available, and compare offers. Then, once you have a clear idea of ​​each card’s benefits, make your choice.

Of course, we also have a guide that offers the best secure credit cards.

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