Roughly one out of every three people has a below-average credit score. Not only do one’s monthly expenses rise as their credit score falls, but access to credit declines dramatically as well. This represents something of a Catch-22 for newcomers and those working to rebuild their standing, since a monthly influx of positive information from a responsibly managed loan or line of credit is the only way to either build a solid score from scratch or devalue negative credit report listings.
That’s why a secured card can be such an important tool. No matter how slim approval rates get for unsecured credit cards, or how much issuer competition exists, you can pretty much be assured of getting a secured card as long as you have at least $200 for the refundable security deposit. And since this deposit doubles as your spending limit, thereby preventing overspending and minimizing risk, issuers don’t need to charge much in the way of fees.
Recognizing the importance of secured credit cards as reliable, cost-effective credit building vehicles, CardHub took an in-depth look at the space in order to help consumers better understand the approval requirements, costs and credit reporting procedures of offers from issuers both big and small. Our findings, which reveal wide variation in the cost and key features of secured cards, are below.
- Using a secured credit card can cost as much as $175 per year, despite issuers carrying no risk of default and little cost of funds (security deposits typically don’t accrue interest). This is largely attributable to a lack of comparison shopping as well as account mismanagement on the part of consumers.
- Not revolving a balance is the best way to minimize secured card costs. Cardholders who do not carry a balance pay $25 on average, while those who do carry a balance pay $84.
- Based on the assumptions used in this study, consumers who anticipate revolving a balance should avoid secured card offers from First Premier Bank, as they may be prove to be the most expensive. Those who feel confident they’ll always pay their monthly bill in full should in turn steer clear of Credit One Bank’s secured offer – the most expensive option for that usage profile.
- Most of the issuers that provided information about their credit reporting policies report to all three of the major credit bureaus – Experian, Equifax and Transunion – on a monthly basis. The only exceptions are Agriculture Federal Credit Union and Western Sun Federal Credit Union, which report to Equifax.
- Secured cards from credit unions cost far less to use than those from banks, both in terms of annual fees and the cost of revolving debt. However, they have much higher initial deposit requirements ($475 on average) than bank offers ($293).
- With no annual fee and an 8.75% APR, Western Sun Federal Credit Union offers the most affordable secured credit card, whether or not you plan to carry a balance. Merrick Bank’s no annual fee secured card with a 17.45% APR is the best offer among banks.
- Quite few business-branded secured credit cards are currently available, and these offers are more expensive than their personal counterparts. Since using a personal credit card does not increase a small business owner’s personal liability, applicants should consider both types of offers in order to find the best deal available at a given time.
- Credit unions don’t seem to have invested enough in their online presence, as they are less likely than banks to have online applications for secured credit cards despite dominating them when it comes to a consumer’s ability to apply in a branch and, to a lesser extent, over the phone.
- Minimum standards for secured credit cards generally include the following:
- A security deposit must be provided in order to open a secured account, although there is some variation in the form of the security deposit among banks. Some banks will allow the security deposit through cash or check, while others require that the applicant open a certificate of deposit, checking account, or savings account in the same bank that is tied to the secured credit card.
- The applicant must provide a Social Security Number (or Individual Taxpayer Identification Number) and all information on the application form must be valid.
- Applicant must not currently be involved in bankruptcy.
- Applicant’s monthly income must be equal or greater than their total monthly obligations, including the minimum payment on the card.
- Additional requirements may include:
- A review of the history of accounts with the institution where you are applying.
- Current delinquencies with other accounts be satisfied.
- Minimum annual income requirements (above and beyond the ability to repay test listed above).
|Issuer||Type||How to Apply||Requirements for Approval Beyond Minimum Standards||Annual Cost of Card without Revolving Balance||Annual Cost of Card with $300 Revolving Balance||Minimum Deposit|
|Western Sun Federal Credit Union||Personal||Online and In Branch||No recent bankruptcy filing or major derogatory credit information||$0||$27.43||$500|
|Digital Federal Credit Union||Personal||Online, In Branch and By Phone||Must open a DCU membership. Requires a $5.00 deposit into Primary Savings account.||$0||$36.56||$500|
|Navy Federal Credit Union||Personal||Online, In Branch and By Phone||Applying members can’t have any current bankrupt or delinquent NFCU accounts. You must be a member of Navy Federal Credit Union, serving Army, Marine Corps, Navy, Air Force, Coast Guard, Department of Defense civilian and contractor personnel, and their families.||$0||$43.34||$500|
|ESL Federal Credit Union||Personal||In Branch and By Phone||When you’re approved for an ESL Visa Secured Credit Card, your account is linked to an ESL Secured Savings account. Subject to credit approval||$0||$45.94||$300|
|Merrick Bank||Personal||Online||An applicant must have been out of bankruptcy for at least a year and have no current delinquencies on other accounts.||$0||$57.18||$200|
|HeritageWest Credit Union||Personal||In Branch||Not Provided||$0||$58.75||$500|
|SouthWest Community Credit Union||Personal||In Branch||Not Provided||$0||$58.75||$500|
|Chartway Federal Credit Union||Personal||In Branch||Not Provided||$0||$58.75||$500|
|Agriculture Federal Credit Union||Personal||Online and By Phone||No recent bankruptcy filing or major derogatory credit information||$25||$73.19||$500|
|Zions Bank||Personal||In Branch and By Phone||Annual Income must be Minimum $6000||$25||$74.38||$300|
|First National Bank of Omaha||Personal||Online and In Branch||You must deposit $300 to open this account and must maintain a minimum balance of $300 in the account each day to obtain the disclosed annual percentage yield.||$19||$78.11||$300|
|Union Bank||Personal||Online, In Branch and By Phone||Minimum deposit of $300. Must have SSN or ITIN. Consumer must not have any unsettled liens||$19||$78.11||$300|
|USAA Bank||Personal||Online||When you apply – you’ll also be opening a USAA 2-year Certificate of Deposit (CD), an interest-earning deposit account that has a two-year term and a $250-minimum initial deposit. USAA Bank products are only available to military members, veterans who have honorably served, and their eligible family members.||$35||$83.19||$250|
|First Choice Bank||Personal||Online||Guaranteed Approval as long as your monthly income exceeds your monthly expenses by $100 or more. Bankruptcy is not a problem unless advised by your credit counselor to wait until bankruptcy has cleared or dimissed. There is no credit check to receive our secured card.||$39||$84.04||$200|
|Capital One||Personal||Online and In Branch||Must have a personal checking or savings account. Must not have a non-discharged bankruptcy or any delinquencies.||$0||$84.79||$200|
|Capital Bank||Personal||Online||Bankruptcy in your credit history has been discharged||$29||$86.36||$200|
|Wells Fargo||Personal||Online||Must not have unsettled liens. All Wells Fargo Credit Cards are subject to credit qualification.||$25||$87.72||$300|
|U.S. Bank||Personal||Online, In Branch and By Phone||We may be unable to approve your application if your credit bureau reflects a bankruptcy, if your Security Deposit is less than $300, or if you have defaulted on a prior loan or credit account with U.S. Bank||$29||$91.72||$300|
|BBVA Compass||Personal||In Branch and By Phone||Minumum deposit of $500 interest-bearing collateral savings account. No recent bankruptcy filing or major derogatory credit information, and no BBVA Compass charge off. Also, we require a minimum of $9,000 in income.||$40||$92.89||$500|
|First Progress||Personal||Online||Any bankruptcy in your credit history has been discharged, you successfully fund your security deposit, and you meet the government-mandated identity and income credit card requirements.||$29||$95.36||$300|
|First Niagara Bank||Personal||Online and In Branch||Must not have a current / open bankruptcy or delinquency. No Open Judgments or Tax Liens. No Prior 1st Niagara Charge off||$50||$95.90||$500|
|OneUnited Bank||Personal||Online and By Phone||Bankruptcy must be resolved||$39||$98.11||$250|
|SunTrust Bank||Personal||Online, In Branch and By Phone||Must have been out of bankruptcy for at least a year and have no current delinquencies.||$32||$98.36||$300|
|Atlantic Stewardship Bank||Personal||Online||Must have been out of bankruptcy for at least a year and have no current delinquencies.||$35||$105.04||$300|
|Fifth Third Bank||Personal||In Branch||$300 deposit into a secured Fifth Third savings account that earns interest. Applicants are subject to credit approval. You cannot have current delinquencies with Fifth Third Bank. Charged offs are considered paid off if it is sold to a collection agency.||$24||$105.31||$300|
|Bank of America||Personal||Online and In Branch||$300 minimum deposit. Generally, an applicant must have been out of bankruptcy for at least a year and have no current delinquencies on other accounts. We also look at the individual’s ability to pay and history of accounts with Bank of America. After 12 months, customers may qualify to have their security deposit returned and continue to use the account.||$39||$106.28||$300|
|Commerce Bank||Personal||In Branch||The consumer can’t be in consumer credit counseling or have an OFAC record. In addition they must pass “ability to repay” evaluation (Debt-to-Income ratio less or equal to 60%; must have income)||$49||$109.01||$400|
|Credit One Bank||Personal||Online and By Email||Must have been out of bankruptcy for at least a year and have no current delinquencies.||$67||$136.71||$300|
|First PREMIER Bank||Personal||Online and By Phone||Must not have unsettled liens.||$45||$174.92||$150|
|Wells Fargo||Business||Online||Must not have unsettled liens. All Wells Fargo Credit Cards are subject to credit qualification.||$25||$87.72||$300|
|Metro Credit Union||Business||In Branch and By Phone||Not Provided||$45||$89.73||$500|
|BBVA Compass||Business||In Branch and By Phone||Minumum deposit of $500 interest-bearing collateral savings account. No recent bankruptcy filing or major derogatory credit information, and no BBVA Compass charge off. Also, we require a minimum of $9,000 in income.||$40||$92.89||$500|
In this study CardHub.com reviewed 32 secured credit cards offered by issuers active in the secured credit card space. We gathered the basic information for our report from the websites and/or customer service phone lines of each institution and then attempted to confirm this data with them. The only issuers that did not verify this information by the required date were OneUnited Bank, HeritageWest Credit Union, SouthWest Community Credit Union, Chartway Federal Credit Union, Metro Credit Union, Agriculture Federal Credit Union, Western Sun Federal Credit Union and First Premier Bank. All information contained in this report is current as of August 20, 2015.
We collected information for 29 personal cards and 3 business cards regarding the following key features: approval requirements, minimum deposit, annual fee, APR and credit reporting procedures.
We assumed a $300 revolving balance and applied the purchase APR listed by the issuer to calculate the annual cost for revolving balances. We also assumed compounding daily interest. Where an account’s APR was presented as a range, we used the average. We also included the ongoing annual fee (excluding first-year introductory offers) where applicable.
The requirements for approval to obtain a secured card listed in this report may or may not be all inclusive. Other requirements may apply at application, depending upon the institution.
Some issuers only offer their products to specific segments of consumers. For example, USAA Bank products are only available to military members, veterans who have honorably served, and their eligible family members.