NerdWallet’s Best Secured Credit Cards, Spring 2012 Edition

Do you want to build or rebuild your credit, but can’t seem to qualify for a credit card? A secured credit card can help, and we’ll help you find the best one for you. Secured cards solve the chicken-and-egg problem of credit cards: you need a good credit history to qualify, but it’s hard to build a good credit history without one. But pre-approved credit cards let you make an upfront deposit equal to your credit limit, which makes lending to you practically risk-free for the bank. You’ll get your deposit back when you close your account, hopefully after you’ve built up enough good credit to qualify for a regular credit card. Read on for our take on the pre-approved cards with the lowest fees, and the ones that are easiest to qualify for.

Capital One Secured Credit Card

The Capital One Secured credit card has one of the lowest ongoing annual fees, at $29. But its true draw is its low minimum security deposit: depending on your creditworthiness, you make a $49, $99 or $200 deposit, and no matter what you’ll get a $200 credit limit. That’s a lot better than other lenders, who require you to post the full amount of your credit limit or more. Plus, Capital One makes it pretty easy to raise your credit limit by increasing your deposit. One last great thing about the Capital One card: you can make your security deposit in installments, which is key for someone who wants a secured card but can’t find the cash to make the upfront deposit.

What’s more, Capital One will lend to you straight out of bankruptcy, and they don’t consider your credit score when you apply. Even though a secured card means you’re zero-risk for the lender, many banks from Bank of America onward are skittish about lending to people with poor credit. Capital One, on the other hand, is generous: barring something unusual on your credit report, you’ll qualify.

Orchard Bank Credit Card

Okay, we’ll say this upfront: the Orchard Bank credit card is kind of weird. If you get the secured Orchard Bank credit card, it’s one of the cheapest options out there with a $35 annual fee that’s waived the first year, and a surprisingly low interest rate. Compare that to many prepaid debit cards, which often cost $100+ annually. If you can graduate to a regular credit card before your second year, you can avoid the annual fee altogether.

However, you don’t apply for the pre-approved credit card specifically. Instead, you generally apply for an Orchard Bank credit card, they tell you whether you qualify for a secured or unsecured card, and you decide whether or not to accept their terms. And the fees for the unsecured credit cards are not as appealing: depending on what card you get, you’ll pay an ongoing annual fee of $59. The first year comes with its own charges (see the table below). So you might actually be better off with the secured card, and if you find that you’re offered the unsecured Orchard Bank card, you may want to try your luck elsewhere.

Orchard Bank does have a lot going for it, though. Like Capital One, they’ll lend to you straight out of bankruptcy. They also set up the application so that when you apply for a credit card, your credit score doesn’t take a hit.

Secured credit cards: What they are, and why you’d want them

If you want to build or rebuild credit and don’t have someone to co-sign the loan, a secured credit card may be your only viable option. You are likely to face annual fees, and by definition you will have to pay an upfront security deposit. Still, it’s a small price to pay for being able to qualify for a regular credit card, a personal loan or a mortgage down the line.

Keep in mind that prepaid debit cards don’t help your credit score (they don’t hurt, either, but they’re not particularly helpful if you want to build credit). Some prepaid cards will tell you that they report to the 3 major credit bureaus, but the credit rating agencies don’t take prepaid debit into account when determining your credit report or score. The one exception – sort of – is the American Express Prepaid. If you use it responsibly, you’ll be invited to apply for a charge card, which can help you build your credit score without carrying a balance. However, this is a fairly recent experiment, and there are no guarantees.

But in general, secured credit cards are the way to go, whether you’ve hit a rough patch and want to rebuild your credit, you’re a recent immigrant whose credit history didn’t transfer over, or you’re a student without a full-time income or an adult co-signer. They’ll help you establish a solid credit score, which can help you get loans, apartments and even jobs down the line.