Best Secured Credit Cards of June 2021

The annual fee and initial deposit are money you’ll have to spend even if you never use the card. Here are the important points to consider when choosing a secured credit card:

• Ability to upgrade
• Credit limit
• Fees
• Initial deposit
• Prequalification
• Reporting

Ability to upgrade. Some secured cards have a path to graduation. But issuers differ widely when it comes to upgrading cardholders. And some issuers don’t have a graduation path. Just focus on getting the best secured card you can, and as your credit improves, you could open an unsecured credit card with another issuer.

Credit limit. Credit limits for secured credit cards are typically much lower than for traditional cards, depending on the amount of your deposit, of course. But once you’ve established a history of making on-time payments, you can ask for a credit limit increase. Be aware that this often means increasing your security deposit, so be sure you’re comfortable with that if it’s required by your card’s issuer.

A higher credit limit will certainly make it easier to have a lower credit utilization ratio, which is the amount of credit you’ve used compared with the amount of credit you have available. Your ratio should not exceed 30%. With a lower limit, you might have trouble keeping a low ratio.

For instance, with a $200 limit, you should not exceed $60 in purchases (200 x .30 = 60). With a $900 limit, your balance during the month can go as high as $270 (900 x .30 = 270) before it negatively affects your score. Note: To boost your score even faster, keep your utilization ratio to less than 10%.

Many secured cards will evaluate a cardholder’s payment history after five to 12 months, but this varies by issuer. Keep track of the time yourself, just in case the issuer isn’t proactive about raising your limit or upgrading you to an unsecured card.

Fees. Choose a secured credit card that doesn’t have an annual fee. If there is an annual fee, it’s charged directly to the balance either in one large sum or divided into monthly installments, starting the day you open the card. Beware: Some lenders that target those with really, really bad credit have sky-high fees, such as monthly maintenance and initial processing fees. Read the fine print carefully. And then read it again for good measure.

Initial deposit. Your security deposit must be paid before you open the card. The amount will vary based on your credit history, but it is typically between $200 and $2,500. The amount you deposit is often equal to the card’s credit limit. The deposit is an upfront expense that you won’t get back until the account is either closed or upgraded to an unsecured card. So, be sure you choose a deposit amount that you can afford to do without for a year or more.

Prequalification. Some secured card issuers let you go through a prequalification process to avoid a hard credit inquiry, which can lower your score. But the issuers are also required, by federal law, to make a positive identification of who you say you are. Just to avoid surprises, assume you might get a hard inquiry when you apply for a secured card. Your goal is to improve your credit, and the few points you lose aren’t worth worrying about at this point.

Reporting. The biggest reason to get a secured credit card is to build your credit, so the best secured credit cards report to all three major credit bureaus. But you should still confirm this by reading the fine print. If you can’t find it, call the issuer and ask.