Secured Credit Cards for Rebuilding Credit

Having a good credit rating can open a lot of doors to you. Home ownership, a car loan, rewards credit cards that offer all kinds of neat little perks in return for your good spending habits. For many people though a blip in their life can destroy their credit rating far more quickly than they might imagine. You do not even need to actually be delinquent on your loans or credit cards to have a poor credit score – late payments can do just as much damage if they are a consistent occurrence. You can use secured credit cards to help rebuild your credit but for this tactic to be most effective you have to choose the right secured credit card and then use it the right way.

How Secured Credit Cards Work

In the case of most US secured credit cards as long as you are over 18, have a social security number and can send in the requested security deposit amount you will be issued a secured credit card however bad your credit rating is. The amount of credit you are granted may be equal to the amount you deposited as security or just a little higher, it varies from card to card.

The money you send in as security is usually deposited by the lender in a savings account, where it often builds at least a little interest value. You cannot use this money to pay off your monthly credit card statement though. The lending institution holds that money and will only touch it if you become seriously delinquent on your secured credit card account and it is canceled.

The best way to use a secured credit card to rebuild your damaged credit is to use it regularly but ensure that you pay off your statement in full (and right on time) every month. Over time this method will begin to have a positive impact on your credit score (it will not happen overnight though) and eventually if the lender that issued your secured card also issues unsecured credit card you will often be offered one of those and your security deposit will be returned.

Choosing the Best Secured Credit Card for You

There are more than a few secured credit card offerings out there to choose from and as is the case with unsecured credit cards they are not all created the same. When comparing the different options available to you here are some things you might want to keep in mind when choosing between them?

Security Amount –  When you apply for a secured credit card the lender will determine the minimum amount of security you need to deposit but usually you will also have the option to deposit more money to gain an increased credit line. Many secured credit cards give you a credit card limit that matches the amount of security you deposited, but there are some that will grant a slightly higher limit, depending upon just how bad your credit score is when you are granted the card. In addition most secured credit card lenders will periodically grant credit line increases to card holders with a good payment record without asking them to deposit any more security money.

Interest rate – A secured credit card has an interest rate attached to it in the same way that an unsecured one does. These rates are often rather high compared to unsecured credit cards but there is some variation between offerings. It is actually not a good idea to carry a balance at all if you are using a secured credit card to rebuild your credit, but if you do have to occasionally having a lower interest rate will be a big help.

Perks – there are not going to be the kinds of rewards and perks attached to a secured credit card that you will get with an unsecured card but some secured cards do come with a few extra benefits that mean you get a little more out of your credit card spending so you may want to take the time to consider those offerings.

Here is a little about some of the most popular secured credit card offerings that are available today for you to consider:

The Capital One Secured MasterCard

Capital One have become one of the leading credit card issuers in the US and in Europe over the last several years and they have a reputation for offering great credit card products that are backed up with a fairly good customer service experience. The Capital One Secured MasterCard is no exception.

Initially the required minimum security deposit will either be $49, 499 or $200 depending on what your current credit score is. However much you are asked deposit you will begin with a minimum credit line of $200 and for every dollar over your minimum required deposit you add you will receive a $2 credit line increase.

One of the ways that the Capital one secured MasterCard differs from other secured credit card offerings is that you so not have to deposit all of your security at once (handy if you accessed the $200 maximum) As long as you make your security deposit in full within 80 days of initial card approval you can pay it over time. As soon as you have paid in full you will receive your card.

The Capital One Secured MasterCard has an APR of 22.9 % attached to it an there is a $29 annual fee. Cardholders do however receive access to a credit monitoring system for free though, something that can otherwise cost $10-$20 a month.

If your account remains in good standing you should eventually qualify fro an unsecured Capital One credit card at which point you can close your secured credit card account and your security deposit will be returned to you.

Aventium Secured MasterCard

This is a good offering if you really do not have a great deal of cash available to put down as a security deposit but there are fees attached to the card that you need t be aware of. An initial security deposit of $95 sees an Aventium Secured MasterCard holder granted a credit line that is technically equal to $300 but the $75 annual fee will be deducted from that limit before you receive the card, leaving you with an available credit balance of $225. If you do opt for this card that beginning balance will be charged interest so paying it off the first month is the best idea if you are going to use the card to rebuild credit.

There are some advantages to this secured card though. The higher credit limit looks good to credit bureaus and by making that first $75 payment you will still end up paying around $200 to get this secured credit card but less of your money will be tied up in the long term, and you will begin building credit right away.

The big disadvantage of this secured credit card is the very high APR – 49% – so you should never, ever carry a balance on this card. It is a tool to build credit, very little else, but once you have you will be able to get an unsecured card with far more favorable terms attached to it.