Our roundup of the best and worst cards for bad credit has more information on cards to avoid. Prepaid debit cards offer convenience and are a safer alternative than carrying cash, but they don't help you build credit. With a prepaid debit card, you "load" money onto the card, and the purchases you make are paid for with that money.
Since you're not borrowing money, there's no effect on your credit score. See NerdWallet's best prepaid cards. Offered mostly by smaller financial institutions, such as credit unions and community banks, these loans are designed to help you build a good payment history.
The money you "borrow" isn't actually given directly to you. Instead, it's held on your behalf in a savings account while you repay the loan in monthly installments. Once you're done, the money is released to you — and your credit report shows a paid-off loan.
Learn more about credit-builder loans. These loans can be secured or unsecured. Unsecured loans those without collateral, such as a car title generally have higher interest rates than secured loans.
The better your credit, the lower your rate is likely to be. Conversely, those with bad credit can expect to pay very high rates , if they can get a loan at all.
Learn more about personal loans. NerdWallet's Credit Cards team selects the best secured credit cards based on overall value, as evidenced by star ratings, as well as suitability for specific kinds of consumers. Factors in our evaluation include annual and other fees, security deposits both the minimum required and maximum allowed , APRs, whether a card offers an option to upgrade to an unsecured account, the availability of free credit scores and other credit education, reporting to credit bureaus, and other noteworthy features such as a rewards program or the ability to qualify without a credit check.
Secured credit cards require a cash security deposit, while regular "unsecured" cards do not. The deposit is there to protect the issuer in case you don't pay your bill.
Because secured credit cards pose less risk to the issuer, they are generally easier to qualify for. See the chart of deposit requirements above.
A secured credit card is different from a prepaid debit card that you "load" with money. With prepid debit, you put money on the card, and then you spend that money when you make purchases. A secured card works just like a regular credit card: You make purchases with the card, and then you pay them off later. The deposit comes into play only if you don't make your payments. In that case, the issuer can use it to pay your debt.
In most cases, your credit limit will be equal to your security deposit. It depends on the card. With some cards, you can increase your credit limit just by depositing more money. With others, you must apply for an increase. Some cards will automatically consider you for a credit line increase if you use the card responsibly for a while — not going over your limit and paying your bill on time every month.
Also depending on the card, you might be able to get a higher credit line without depositing more money. Yes, when you close your account in good standing meaning you've paid off your balance or when you upgrade to an unsecured card from the same issuer, your security deposit will be returned to you.
There are excellent options that don't charge an annual fee, including several on this page. If you want a card that won't require a credit check or that charges an extra-low interest rate, you're more likely to pay an annual fee. Credit card issuers set interest rates according to risk: The higher the risk, the higher the rate.
Since secured cards are designed for people building or rebuilding credit, they usually charge higher rates than "regular" cards. Keep in mind that if you don't carry a balance from month to month — that is, if you pay your balance in full every time — then your interest rate doesn't really matter because you don't get charged interest. Even though the risk is lower, issuers of secured cards still have eligibility criteria.
For example, you'll need to be able to pay your bill each month, so your application could be rejected if you don't have a job or if you have only a small income. If you have filed for bankruptcy and the case is still pending meaning a court could wipe out any debt you put on a new card , you could be rejected. Some secured cards are designed only for people new to credit, rather than those with bad credit, so you could be rejected based on negative information on your credit report.
Use it to build your credit! Make small purchases with it regularly, and then pay those purchases off in full every month to avoid paying interest. Ideally, you won't have this card forever.
It's a tool you use to demonstrate to lenders that you can handle credit responsibly. As you build a solid payment history and your credit improves, you can start looking at cards with better benefits.
Yes, but be careful. Several specialist companies offer unsecured credit cards designed for people with bad credit, but we generally advise consumers to be cautious when applying for them. And unlike a secured card deposit, none of these fees are refundable. Show summary. Our pick for Rewards and upgrading. Add to compare. Apply now. Annual fee. Recommended Credit Score. See your approval odds. Why We Like It. Product Details. Our pick for Low deposit. Pros With most secured cards, your deposit must be equal to your credit limit.
Cons Underwriting standards are tighter than for many other secured cards. No annual or hidden fees. See if you're approved in seconds Building your credit? Our pick for No credit check or no bank account. Build credit quickly. OpenSky reports to all 3 major credit bureaus. Cons As with all secured cards, an upfront deposit is required.
It's free for everyone and checking your credit does not hurt your credit score Earn unlimited 1. Our pick for Easy account management. Pros Instead of a security deposit, the card is backed by the money in a linked account, which you can add to at any time. Cons The safety precautions that make it an excellent tool for building credit can also get in the way of learning how to handle credit responsibly.
Our pick for No-deposit alternative So-called "alternative credit cards" can also be a good option for those with no or poor credit. Cons You may be required to link your bank account in order to get this card, and the rewards it does earn are only with select merchants. Variable APRs We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. As we just mentioned, one secured credit card is enough to build your credit. Here are a couple of comments from some folks: "I applied for the Capital One secured card six months after by BK discharge.
Score was about One of the cool things about Cap One is their app. It is really handy because you can track all your transactions, pay your bills and track your credit score. I took the advice of many folks here and simply charge a small amount every month and pay it off in full every month. Thanks CapOne for helping me rehab my credit. And BTW - my score is now It was about when I applied and it is now after 11 months. However, despite this, we do not recommend just having one and here the reasons.
Whether you have a secured credit card or a regular unsecured credit card, it is always prudent to have a backup. Because you might lose your card and need to use a credit card immediately. For example, if you misplaced one of your cards at home and need to order something from Amazon right now or pay the caterer for your party, having a spare credit card in your wallet will always come in handy.
Even if you report that your credit card is lost, it will take a minimum of day possible with Amex or business day for your new card to arrive. Having a spare one will always come in handy. Another reason for having a second secured credit card is that you should have cards from different networks. You always want a Visa or Mastercard even if your main card is an Amex. Or you may decide to get the Discover It Secured Card which is a great card.
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