6 Important Things to Look Out for When Comparing These Secured Cards
Conducting thorough research when choosing a secured credit card is absolutely crucial for making the right decision. Here are the most important factors to watch for when comparing different providers.
1. Annual Fees
The goal of getting a secured credit card is to build or improve your credit score, so you might want to find one that will save you money on fees. The most important fees to look out for are annual fees, and foreign transaction fees if you plan on using the card abroad. Many secured cards charge low annual and foreign transaction fees. There are even some even waive annual fees for the first year, but there are also those with no annual fees whatsoever.
2. Interest Rates, or APR
Interest rates, or APR (annual percentage rates), vary depending on a secured credit card issuer. You should look for a card with low interest rates so that you avoid paying too much if you ever fail to provide payment by its due date. However, make sure you’re never late with payments, so that you don’t have to worry about accruing interest rates, not to mention negatively affecting your credit score.
3. Credit Limit
The credit limit is yet another very important factor to watch for since it determines how much money you can spend on your credit card. You should look for a card that allows enough credit limit for your needs, but be careful not to choose too great of a limit, so that you don’t risk falling into debt. The deposit you put down is what sets your credit limit. Every provider has different requirements for minimum and maximum deposits, so be sure to check them out before making your final decision.
4. Reporting to the Major Credit Bureaus
Not reporting your payment activity to the three major credit bureaus won’t help you build or improve your credit score. Make sure the provider you choose sends monthly reports regarding your payment activity to all the credit reporting agencies so that they put your good behavior in your credit report.
5. Credit Checks
While banks providing regular credit cards always conduct credit checks prior to issuing the cards, this is not always the case with secured credit cards. If you have nothing to worry about regarding past credit behavior, credit checks may not be very important to you. But if you’ve just declared bankruptcy, or have a history of bankruptcies, or you perhaps used to consistently miss payments on previous credit cards, you might want to find a provider that won’t check your credit.
6. Rewards
Rewards are great incentives for secured credit cards. You can get a card that gives you points that you can use for travel, getting a cashback, or making retail purchases. The more you spend, the more points you earn, which means saving a lot of money in the long run (but only if you borrow it responsibly). However, these cards usually come with annual fees, but the rewards can often reduce them. If you’re interested in reward programs, find a card that offers rewards for things on which you regularly spend the most.
5 Common Secured Card Myths
A lot of people don’t even consider getting a secured credit card, because there are some quite ridiculous misconceptions about them. Here we debunk all the myths.
Everybody Can Get a Secured Card
Not everyone can get approval for a secured card. These cards are made specifically for people with bad credit, or no credit history at all, such as students and first-time borrowers. But despite those requirements, there isn’t a guarantee that you will get approval. If you’ve made many missteps along the way, such as severely missing your payments, or going bankrupt several times, you’re not likely to get this card. Having a pending bankruptcy would also ruin your chances for approval.
Secured Cards Are Costly
Secured credit cards are very affordable. Their annual fees, if any, are very reasonable. They don’t go above $50. They do usually come with higher interest rates than regular credit cards, but you won’t accrue them if you’re always punctual with your payments and clear them every month. What’s more, you decide how much you want to spend, because you set your own credit limit with the initial deposit you put down.
Regular Card Providers Treat Secured Cards Differently
This really couldn’t be further from the truth. There’s absolutely no reason why providers of regular credit cards would treat their secured counterparts any differently. The cards are the same in functionality, except they’re made for people with lower credit scores, to help them improve it, and for people who need to establish that score from scratch.
Secured credit cards are stepping stones toward unsecured cards, and no bank would ever treat you any differently when you want to upgrade to a regular card. As a matter of fact, if you manage your credit responsibly, and build a good credit score, every bank will deem you creditworthy. What’s more, nowhere in your credit report will it say that you have a secured credit card. What every lender will see on your credit report is the payment history of just another credit card.
Secured Cards Are a Great Way to Borrow Money
When you have a secured card, you don’t actually borrow money from your bank. You practically borrow it from yourself. This is because your credit limit is determined by a cash deposit that you must put down to open your account.
But why then would you want to put money in an account in the first place? Because your secured credit card will help you build a great credit score. Whether you have a bad score, or you’re a first-time credit card user, you’ll build good credit necessary for getting a regular credit card.
People Only Get Secured Cards When They Have No Other Choice
This is also a very common myth floating around about these cards. There are actually several great alternatives to secured credit cards, so they’re far from being the last resort. If you don’t qualify for an unsecured credit card, you can get a debit or prepaid credit card. However, those don’t help you with your credit score, because they don’t report to the major credit bureaus. If you want to build or rebuild your credit score, but you don’t get your approval for a secured card, you have other things to choose from, such as credit builder loans, merchandise accounts, and student credit cards.
Are There Any Rewards for Using One of These Cards?
Rewards, or bonuses for spending, are common with regular credit cards, but quite sparse when it comes to secured credit cards. They also differ when it comes to different issuers. If you’re looking for a secured credit card with rewards, you should know that those usually come with annual fees. However, they can help you earn extra money on your spending.
For instance, you can get a card with points or miles that you can use to book flights, hotels, restaurant reservations, and more. You can also get cashback on your purchases, or get points for making retail purchases, such as at gas stations or grocery stores. You won’t be charged extra for the rewards, but be sure to look for those that will actually benefit you. Also, check for any potential limits to earned points or miles, and whether there’s an expiration.
