One way is to get a new credit card and prove that you can use it responsibly. But for many people with bad credit, the obstacle to improving their credit is that they can’t get approved for a new credit account in the first place.
What’s more, if you do manage to get approved, most credit cards for people with bad credit charge very high fees and interest rates, and many lack cardholder benefits and even acceptable customer service.
The Secured Mastercard® from Capital One is different. It has no annual fee, and you receive the same quality benefits and customer service offered to holders of its other credit cards.
- Annual Fee: $0
- Required Refundable Security Deposit: $49, $99 or $200
- APR: 26.99% APR variable
How the Secured Mastercard® from Capital One Works
Secured credit cards work a little differently than traditional cards. To open an Secured Mastercard® from Capital One account, you must first complete and submit an application, like normal. Upon approval, you’ll be notified of the refundable deposit you need to submit, which will be $49, $99 or $200, depending on your credit history. Once you’ve submitted your security deposit, you’ll receive your new card with an initial credit line within two to three weeks.
The card will then work just like any other credit card, and no one will know it’s a secured card. Each month that you make a charge, you’ll receive a statement, and you’ll be required to make a minimum payment. The security deposit is only used in case you default, which you’ll definitely want to avoid when trying to build or rebuild your credit.
Every month you make your payments on time, you’ll add positive information to your credit report, which can improve your credit score. Capital One will automatically consider your account for a credit line increase in as little as six months. After a year of on-time payments, many people who started with bad credit are able to qualify for a standard, unsecured card and receive a refund of their deposit.
This card isn’t a bare-bones product devoid of benefits either. You’ll receive rental car insurance, travel accident insurance and extended warranty coverage for your eligible purchases. This card has no annual fee and no foreign transactions fees, and there is no application fee — which some secured cards charge.
This is one of the rare cards with no annual fee that is designed for people who have had serious credit problems. Most secured cards limit the holder’s line of credit to the amount of their security deposit. But with this card, it’s possible to receive a line of credit that’s greater than your security deposit.
This product is offered by a highly respected credit card issuer, and you have the possibility of eventually upgrading your account to a standard unsecured card. Overall, it has strong benefits and very few fees.
Unlike a standard unsecured card, you will have to submit a refundable security deposit. This is standard for secured cards.
Secured Credit Cards: Other Options
Citi® Secured Mastercard®. This is another secured card from a major issuer that has no annual fee. It requires a minimum $200 refundable security deposit, and the amount you choose to deposit becomes your credit limit. Unfortunately, Citi cards no longer offer many cardholder benefits such as rental car insurance or extended warranty coverage.
Discover it® Secured Credit Card. This card also has no annual fee and requires a refundable deposit that becomes your credit limit. It even offers 2% cash back at gas stations and restaurants on up to $1,000 in purchases each quarter, and unlimited 1% cash back on all other purchases. However, receiving small rewards for spending may not be the best incentive for those who have struggled with overspending and credit card debt.
BankAmericard® Secured. To open an account with this card, you have to submit a refundable security deposit of between $300 and $4,900, which becomes your credit limit. This card has no annual fee and offers you a free monthly FICO credit score.
There are dozens of credit cards designed for people with bad credit, but many of them charge excessive fees and interest rates. The Secured Mastercard® from Capital One stands out from this crowed field because it is a secured card with a minimal deposit, no annual fee, and good benefits.