Secured Credit Cards: The Expected, The Surprising & The Best For Your Needs

by John Kiernan on October 27, 2011

secured-credit-cardsThink all secured credit cards are the same? It’s ok, you can admit it. I mean, it’s a natural assumption; they all require minimum security deposits of around $200, the exact amount you put down equals your credit line, you get back your deposit minus any outstanding balances when you close your account, and so on and so forth. Interestingly though, a new study helps complete the picture and reveals some important differences between secured credit card issuers.

Overview & Application Requirements
The first thing you need to know is that not all banks or credit card companies offer secured credit cards. In fact, only 62% of the issuers investigated in the study do. What’s more, there are some minimum requirements for approval that all issuers must abide by. Some are going to seem familiar, others may be a surprise:

  • You need to place a security deposit (min. and max. deposits vary by issuer)
  • You must have a Social Security Number and complete an application with accurate information
  • Your income and assets must be greater than your monthly financial obligations, including the minimum payment you will be required to make for your secured credit card. This requirement might indeed be news to many of you, but it shouldn’t be, given that the new credit card law requires that issuers evaluate each applicant’s ability to pay, regardless of the type of credit card.

However, these are only minimum requirements, and 62% of issuers have more stringent policies. In case you’re wondering, the ones who don’t are: PNC, USAA, HSBC/Orchard Bank, Applied Bank and First Progress.

Apparently, all the big boys need to see a bit more from applicants before handing over that plastic, but what exactly? Each issuer has its own policy, but the most popular requirements seem to be:

• You cannot be in bankruptcy (in some cases, you must be at least 1-2 years clear)
• You cannot have recent delinquencies, charge-offs or accounts in collections
• You cannot have any major pending court decisions

What About Logistics?
Ok, so we’ve covered the basics when it comes to what you need in order to open a secured credit card, but how do you go about actually opening one? In general, there are four ways to apply: online, through the mail, via phone and at a branch location. For your convenience, we’ve noted below the issuers that allow you to apply online. After all, you don’t want to waste time dealing with automated phone systems and customer service reps or journeying down to a brick-and-mortar branch if you don’t have to:

Bank of America
Capital One
Wells Fargo (only for existing customers)
• HSBC/Orchard Bank
• USAA
Applied Bank
First Progress

The Best Secured Credit Card
The question that will inevitably arise from all of this is: What is the best secured credit card? Since the secured credit cards offered by all of the issuers mentioned in the study report to the major credit bureaus and therefore allow you to build credit—the most important factor for most secured card users—the best card would have the be the one with the lowest fees, most lenient application requirements and least constrictive application policies. With that being said, the honor would have to be shared by the Applied Bank Secured Credit Card and the Orchard Bank Secured MasterCard.

If you are planning on making purchases with your secured card, the Orchard Bank option is preferable, given that it has a 7.9% APR, no first-year annual fee, a $35 annual fee beginning in the second year, and a 23 day grace period.

If, on the other hand you plan on locking your card in a drawer in order to build credit without the temptation of spending, the Applied Bank option is for you. While this secured VISA card might seem more appealing than the Orchard Bank option, given that it has a 9.99% APR and no annual fee, the catch is that it doesn’t have a grace period, which means that any purchases you make will begin accruing interest immediately.

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