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Do you need to fix an ailing credit score? Alternatively, do you need to keep a credit history so you can even qualify for a three-digit FICO credit score? If you apply for a secure credit card and make your monthly payments on time, you can achieve both of these goals. You can even qualify for a secured credit card that will automatically upgrade to a traditional card after you’ve made enough on-time payments.
Here’s a look at the best secured credit cards, which are evolving into traditional, unsecured cards over time, and how these cards can help you resolve your credit history and creditworthiness issues.
What is a secured credit card?
Secured credit cards work much like traditional cards: you use these cards to make purchases throughout the month and then withdraw at least some of those purchases on or before your card’s due date. If you settle your balance in full, you will not owe any interest. If you pay out less than your full balance, your credit card provider will charge you interest on the remaining balance.
With secured cards, however, you make an initial deposit at the bank that provides the card. This deposit usually becomes your credit limit. If you apply for a secured card, you can deposit $ 600 at your bank. Your credit limit for this card will then be $ 600 and you will not be able to raise any charges equal to that amount.
This limits the amount you can spend and makes it easier for those with damaged or limited credit histories to qualify for secured cards. By setting this limit, card providers take a lower risk; If you fail to pay your credit card bill, the bank can simply deduct the amount owed from your deposit.
For this reason, secured cards are a great choice for consumers who have low credit scores or who don’t have a credit history long enough to get good credit (or a notch at all). As long as you make your monthly payments on time with your secured credit card, you will gradually build a strong credit history and solid credit history. If your score is high enough, you can apply for traditional, unsecured credit cards.
Some secured credit cards automatically become traditional cards after you make enough timely monthly payments. The number of payments varies by card issuer, but many secured cards become unsecured versions if you make at least nine to 12 on-time payments in a row.
How do secured cards differ from unsecured credit cards?
You may be wondering, “What is an unsecured credit card?” The main difference between secured and unsecured credit cards is the security deposit required with secured cards. Traditional, unsecured credit cards do not require cardholders to make deposits with their issuers.
The credit limits for unsecured cards are not tied to a deposit, but are determined by the credit of the cardholder. Cardholders with a higher credit score qualify for higher credit limits. It’s not uncommon for consumers with the highest FICO credit scores – usually 740 or higher – to qualify for credit limits of $ 20,000 or more with their unsecured credit cards.
Unsecured credit cards also usually come with more generous rewards programs. Many traditional credit cards allow cardholders to accumulate award points, free miles, or cashback bonuses, while few secured cards offer award programs. This benefit, along with higher credit limits, is why most consumers prefer unsecured credit cards.
Best secured cards that get too unsecured
Which secured cards are automatically updated to unsecured? Here’s a look at some of Bankrate’s top picks.
Discover it® Secured Credit Card
The Discover it Secured Credit Card is one of the few secured cards that comes with a rewards program. Get 2 percent cashback at gas stations and restaurants on combined purchases of up to $ 1,000 per quarter. You will also receive unlimited 1 percent cashback on all other purchases.
The card has no annual fee and allows you to open an account with a deposit of just $ 200. After eight months, Discover will review your payment history and credit history to see if you can switch to an unsecured Discover credit card.
BankAmericard® secured credit card
While it’s a fairly simple card, the BankAmericard Secured Credit Card has some nice perks. There is no annual fee and all you need is a $ 300 deposit to open an account. In addition, this card allows you to deposit up to $ 4,900 – a high maximum deposit compared to other secured cards.
On their website, Bank of America says they will regularly check your account to see if you can upgrade to an unsecured Bank of America credit card.
Capital One Platinum Secured Credit Card
You don’t need a lot of cash to open an account with the Capital One Platinum Secured Toll Free Credit Card. In fact, Capital One requires a deposit of just $ 49. Keep in mind that your initial credit limit can also be low – just $ 200 more specifically. After six months, Capital One will begin reviewing your payment and account history to see if you qualify for a higher credit limit or an unsecured Capital One credit card.
Citi® Secured Mastercard®
Although you need a minimum deposit of $ 200 to qualify for the Citi Secured Mastercard, you are flexible. Depending on how much you deposit, you can qualify for a line of credit up to $ 2,500. Like other cards on this list, the Citi Secured Mastercard does not charge an annual fee. After 18 months of card ownership, Citi will review your account to see if you are eligible for a refund of your deposit and may upgrade to an unsecured Citi credit card.
How to update if your secured card doesn’t do it automatically
Some secured credit cards are never upgraded to an unsecured version. In these cases you will have to switch to a conventional credit card yourself.
First, you need to have a good enough credit rating to qualify for a traditional card. You typically need a FICO score of 680 or higher to qualify for traditional credit cards that also offer rewards programs. Fortunately, getting this score isn’t complicated.
The most important step is to pay your bills on time. For example, paying your mortgage, credit card bills, or student loan overdue for 30 days or more can drop your FICO credit score by 100 points or more. On the flip side, paying bills on time can help keep your score steadily growing.
Also, make sure that your credit card debt is low or nonexistent. If you have too much debt month to month, your credit score can go down. Always try to withdraw as much as you can on each due date, knowing that it is best to withdraw all of your balance on or before the due date. Not only does this help your credit score, but it also ensures that you don’t have to pay extra interest on your credit card debt.
Once your score is high enough, apply for a traditional credit card. Depending on your score and other factors such as B. Your monthly income, you can qualify for an unsecured card that comes with a higher credit limit and a rewards program.
You’ll need to decide whether to close your secured card or leave the account open, but be aware that closing your card could affect your creditworthiness. Closing an active credit card account will leave you with fewer funds – which in turn may increase your credit utilization.
This does not mean that you should always leave your secured credit card account open. If you feel that you might be tempted to pile up debts on the card and not pay it off in full, it may make more sense to close the account and remove the temptation.
This will increase your chances of qualifying for an unsecured credit card
The best way to qualify for an unsecured credit card is to practice good spending and payment habits. If you pay your bills on time each month – including paying your secured card – you will continually build a credit score or improve a poor one. You will also improve your credit score by paying off existing debts.
How long it takes to build a credit rating high enough to qualify for an unsecured card varies. If your score is low, it can take months to make payments on time to get your score up to the 680+ range likely to be required to qualify for an unsecured credit card.
The bottom line
Secured credit cards are a smart way to build your credit history so you can qualify for an unsecured credit card in the future – one that comes with a higher credit limit and valuable rewards. The key is to make your monthly payments on time and keep your debt low so that one day your secured card will be converted to an unsecured version.
All information about the BankAmericard® Secured Credit Card has been collected independently by Bankrate and has not been reviewed or approved by the issuer.