Capital One® Secured Mastercard®
Who should get it: If you don’t have a lot of money saved up for deposits and fees, you should consider getting the Capital One® Secured Mastercard®. For as little as $49 refundable security deposit, you can open an account and get access to a $200 line of credit that will help you rebuild your credit score.
How to use it: The Capital One® Secured Mastercard® gives you access to a higher credit line as long as you pay your first five monthly bills on time. Plus, you can pick your monthly payment due date. Use the extra perk of a personalized payment date to pay your balance in full and on time to avoid interest, build credit and possibly increase your credit line.
Why you’ll love it:
The Capital One® Secured Mastercard® is a super low-cost credit card with no annual fees, but you wouldn’t know it from its long list of perks. If you make your first five monthly payments on time, you’ll get access to a higher line of credit — no additional deposit required. You’ll also get free alerts whenever your credit score changes, a personalized payment schedule, round-the-clock customer service and more with this top-notch secured credit card.
Things to consider:
- High variable purchase APR of 26.99% (Variable)
- No rewards
- May check your credit when you apply, which could impact your credit score
Pro tip: Make your payments on time to avoid the up to $39 late fee and get access to a higher line of credit after five months without an additional deposit.
Secured credit cards can teach you smart financial habits and help you use credit responsibly. They’re a good credit card option for people who are trying to establish their credit history for the first time or want to rebuild their credit score.
What is a secured credit card?
Secured credit cards are designed to help you establish a credit history or rebuild your credit score after a financial hardship. Unlike traditional unsecured cards, many secured cards don’t require you to have a minimum credit score or extensive credit history to qualify, and some don’t even require a bank account. However, all secured credit cards do require you to provide a small security deposit when you open your account. Your deposit serves as your credit limit and “secures” your card, protecting the lender in case you default.
What’s the difference between a secured card and an unsecured card?
Secured credit cards require you to put down a small deposit that serves as your credit limit. Unsecured credit cards, on the other hand, don’t require any kind of deposit. That’s why unsecured credit cards are harder to qualify for. Since the lender doesn’t have any protection in case you default, you need to have a good credit score to get approved for an unsecured card, especially if it has a high credit limit or special perks.
How to use a secured card to build your credit
By paying off your full credit card balance each month, you will avoid paying interest and help build your credit score faster. If you do have a balance that carries over, be sure to keep your credit utilization at 30% or less to demonstrate control. Your credit utilization ratio is a key factor in determining your credit score and accounts for up to 30% of your FICO score, so it’s best to keep a close eye on it.
Can you be denied for a secured credit card?
Although secured cards are much easier to qualify for than other credit cards, your application can still be denied. A lender may deny you if you have insufficient income, a history of bankruptcy or a history of delinquencies with the issuing bank. If you do get denied when you apply for a secured card, you have a right to know why because of the Fair Credit Reporting Act. Make sure you contact the bank to find out the reason behind the rejection, so you can fix those issues and apply for another card in the future.
How is credit score calculated?
Your credit score is a number between 300 and 850 that is calculated using the data in your credit report. There are two main factors that influence your credit score — payment history and credit utilization ratio. Your payment history provides a record of whether or not you’ve paid your bills on time and helps lenders gauge your level of financial responsibility. The other important metric, credit utilization ratio, helps lenders see how you are managing the credit available to you. Having a high credit utilization ratio signals that you may be overextended, which will lead to missed payments, so you should do what you can to keep it low.
Other secondary factors that help determine your credit score include the length of your credit history, your mix of different types of credit and your history of opening new accounts.
Who are the major credit reporting agencies?
There are three major credit reporting agencies — Equifax, TransUnion and Experian. They collect data about you, your credit history and compile it into a report that’s used to calculate your credit score.
How do you avoid credit card debt?
To avoid racking up a high balance you can’t pay off, only use your credit card to buy things you can afford. Although it’s tempting to use your card to pay for nice things that are out of your price range, doing so will lead you down a slippery slope. You’ll end up carrying a balance on your card and accruing interest, which will raise your payments and make it harder to pay off your debt completely.
Pros and cons of secured credit cards
Secured credit cards are one of the best ways to build your credit and establish good financial habits for your future. Unlike prepaid credit cards, activity on secured credit cards usually gets reported to all three major credit reporting agencies. So if you make regular, consistent payments on your credit card, you’re likely to see a significant boost in your credit score.
Another positive is that secured credit cards are a great learning tool for people who are new to credit or who struggle with managing their spending. They also typically have much lower credit limits than unsecured credit cards, so it’s harder to run up a balance you can’t afford. This makes the secured route less risky overall and better for new cardholders and people who have had trouble limiting their spending in the past.
Although there are secured credit cards with relatively low minimum deposits and fees, some people may find it hard to save up enough money to open an account. If you have limited savings, a credit-builder loan may be a better option for you. Credit builder loans allow you to build your credit without putting up collateral, as the money you borrow is held in an account and isn’t released until you successfully make all the payments.
Another drawback of secured credit cards is that they tend to have higher interest rates than regular, unsecured credit cards. If you don’t pay off your balance in full each month, you can end up paying a lot in interest.
Please Note: Information about the Capital One® Secured Mastercard® have been collected independently by TheSimpleDollar.com. The issuer did not provide the details, nor is it responsible for their accuracy.