With bad credit, it can be even more challenging to obtain credit card approval. In the event you have no credit, the range of credit card of options is likely also to be limited.
One card however, that is ideal for individuals with either zero credit or bad credit is a secured credit card.
The reason for this is because, a secured card requires that the borrower first must make a deposit which the bank or lender uses as collateral. Ultimately, a secured cards is a safer credit method that enables a borrower to build their credit history while initially maintaining a lower credit limit.
If a secured credit card sounds like a good credit option for you, the next step is to decide which of the secured card choices offer the most suitability for your financial needs.
Here are 3 tips to finding the best secured credit card.
1. Consider the Fees
Regardless of the credit card you are interested in, it is always a good idea to consider all of the fees associated with the card. Even though, a secured card can offer certain benefits that other cards cannot, the same should still be said for reading the fine print just as carefully as you would any other card.
For example, some of the important fees you want to look into include, the application and processing fees, the annual fees, and of course the interest rate. With regards to the first 3, be sure to determine whether these are realistic for you in terms of what you can afford. If these fees are too high, it may mean that your attempts to rebuild your credit by being able to keep up with payments may be far too unmanageable. Therefore, when looking for the most suitable secured card for you, compare these fees and consider what you CAN afford.
In terms of interest or annual percentage rate (APR), you will not only want to look at the amount of interest you will be paying, you will also want to take into account what the fine print states regarding the grace period for accumulating interest, as well.
In the end, while the APR is one of the most critical aspects when deciding whether a credit card is suitable or not, all of these important details are all very important, as together they all help you to identify whether or not one secured credit card will be a better alternative for you and your financial needs.
2. Credit & Deposit Limit
A second area of concern when determining which secured card is best is to look at what credit limit they will offer. While credit limits are typically low for these types of cards, there is an opportunity to have a credit limit increase down the line. The likelihood of this occurrence is closely related to the degree of reliability you demonstrate when paying back your balance. Again, if you are likely to be in the position of trying to build or rebuild your credit, then opting for a lower credit limit in the beginning can be very ideal.
Now regarding the deposit limit – or the amount of the initial security deposit you will make to open your account, it is common for this to be the same amount as your credit limit. This initial credit limit therefore is protected by the deposit you have made and will cover any outstanding balance, in the event you can’t pay it back.
On the other hand, other secured cards will offer differing credit and deposit limits. For example, if you are offered a credit limit of $300, the deposit you make may only be as high as $50. Therefore, you may want to look at whether or not you can pay back the entire credit limit, because your security deposit won’t cover this amount in full, should you run into payment troubles.
Ultimately however, as you examine the range of secure credit cards available, also remember to look for one that does not exceed your budget.
3. Reporting to Major Credit Bureaus?
Lastly, if you are looking for a secured credit card that will enable you to establish a credit history, then one important element of the card should be that the lender or creditor offering the card does in fact report the credit information to a major Canadian credit bureau. Since payment history is typically one of the most significant pieces of information that can impact your credit score, if you are using your consistent secured card payments to improve your credit, you want to make sure that these actions are not going unnoticed.
With this being said, when deciding on a secured credit card option, it is also a good idea to make sure that the lender who issues the credit card is reporting to either – or both Equifax andTransUnion. If they are not, all of your hard work to re-establish and/or build your credit won’t be reflected in your overall credit history.
In the end, if going from a zero credit score to a credit history is your goal, it is best to look for secured cards that offer both spending privileges as well as allow you to improve your credit. Even if a secured card is your only option for right now, there are still some decisions you will have to make in regards to choosing the ideal card from this category.
Whether establishing or re-building your credit – for the time-being, a secured credit card can be a highly beneficial method of creating a strong credit score and moving yourself out of a bad credit rut.
