Secured Credit Cards – Why would you wish to consider setting up a secured credit card? I discuss a few of these reasons in this, this and this blog. The reason is quite simple – You wish to rebuild your credit scores and reestablish your credit reputation following a personal financial disaster.
Those who read my posts know I am favorably predisposed toward credit unions for consumers. So it stands to reason I would lead this list of secured credit cards with that which is offered by my own credit union.
With my credit union, as with most, there are no fees. The interest rate is fixed at 7.90% (the effective rate is actually 7.40% as we earn .50% on our pledged/secured savings). The way it works is the member pledges 110% of the requested credit limit. For example: The member pledges $1,100.00 in savings for a credit card with a limit of $1,000.00. The credit history you establish with your secured card is reported to the credit bureaus. As previously posted you, too, are eligible to join your own credit union.
Applied Bank© offers a secured Visa© with a fixed rate of 9.99% and no fee. This is a 100% pledge of savings to credit limit. So for a credit limit of $1,000.00 the customer must pledge $1,000.00. On average, the current savings account rates are paying .48-.50%. As of publication, this return is true with most similar savings accounts in the country. Shop the Applied Bank offers (and others) with care, while one has no fee, another of their secured cards has an annual fee of $119.00 and may have higher rates.
Amalgamated Bank of Chicago© secured Master Card© has an adjustable rate ranging from 9.25-14.25%. The annual fee is $50.00. As with the other bank secured cards, they offer a 100% pledge of savings to the credit limit.
Capitol One© Secured Master Card© has an annual fee of $29.00 and an adjustable rate of 22.90%. Here also the customer pledges 100% of a savings account deposit of the credit limit.
Last but not least of this group is the Orchard Bank© VISA© Card. The fees are not disclosed unless one applies. As discussed below, hard credit inquiries scratch and dent your credit scores. Their adjustable interest rate varies 7.90-19.90%.
A good source to search for the smaller limit secured cards is bankrate.com. On a recent search I found these as the featured cards. You may note that some have no fee but a higher rate. Another has a low rate but a high annual fee. I do not endorse any of these cards. Nor do I demean them. They are what they are. Finally, you may wish to do your own search for the latest offerings.
Another good source for information on starter or restarter credit cards is: My Bank Tracker.
Unsecured Credit Cards – There are very few unsecured credit cards available within 5 years of bankruptcy. Given there is such limited competition, you will pay outrageous fees and rich double digit interest rates. There is no advantage to your credit report and credit scores by having such a card. A Secured Card will be reported to credit rating agencies exactly the same as an Unsecured Card. You may shop for unsecured cards on the Internet but be prepared to pay outlandish fees and absurd interest rates. Hard credit inquiries are reported against your credit scores. Use great caution when you go to the sites offering free credit scores as many of them have very weak security and pose a great risk to your privacy. As always keep in mind TANSTAAFL.
Read your contract with the provider of the credit card. Know what’s in your wallet.
A Debit Card is simply a plastic check. It is linked directly to your checking account. Of and by itself it offers no benefit to your credit. To have credit with your debit card, you must qualify for overdraft protection which is an unsecured line of credit and reported on your credit report as a revolving (credit card) account. Debit cards don’t have the security of credit cards as is illustrated in this ABC News report. Use due caution with debit cards. In the catch phase of a ‘60’s TV show: Danger.
Art Credit: Google ImagesFinancially Speaking – James Spray RMLO, CNE, FICO Pro | CO LMO 100008715 | NMLS 257365 | July 6, 2011 | Updated August 24, 2014 Notice: The information on this blog is opinion and information. While I have made every effort to link accurate and complete information, I cannot guarantee it is correct. Please seek legal assistance to make certain your legal interpretation and decisions are correct. This information is not legal advice and is for guidance only. You may use this information in whole and not in part providing full attribution is given to James Spray.