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Alternatives to Instant-Approval Credit Cards

Credit Cards, Credit Cards for Bad Credit
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For people with bad credit or no credit, so-called instant-approval credit cards may seem like an alluring option, since they don’t require a credit check. But the negatives of such cards usually far outweigh the positives. Guaranteed-approval cards almost always charge high fees, often hundreds of dollars a year. And some don’t even report customers’ payment activity to the national credit bureaus. That defeats the purpose of getting such a card, which is to build your credit.

What to get instead: A secured credit card

The best alternative to an instant-approval credit card is a secured card. These cards require a refundable cash deposit, which is usually equal to your credit limit. The deposit reduces the risk to the issuer; in the event you don’t pay your bill, the card issuer will close the account and use the deposit to pay the outstanding charges. Deposit requirements vary by issuer, but here’s how it typically works:

  • You deposit an amount of money as collateral, say $200.
  • The issuer gives you a card with a spending limit of $200.
  • You use the card just like any other credit card, making purchases and paying them off.
  • If you follow good credit practices — including making payments on time and keeping your credit utilization low — the card helps you build good credit.
  • When you close the account or upgrade to a regular unsecured card from the same issuer, you get your deposit back.

Approval for secured credit cards is not guaranteed in all cases. Depending on the issuer, you might still be declined, if, for example, you don’t have a source of income, you don’t have a bank account, or you have an undischarged bankruptcy. But because the deposit lessens the risk, issuers make these cards available to people who couldn’t qualify for other cards. And the cost of carrying them is less than with instant-approval cards, especially considering that you get your deposit back, and dodge the high fees on instant-approval cards.

Recommended secured credit cards

NerdWallet recommends the following secured credit cards for people with no credit or damaged credit who are looking to build their credit.

Best for rewards and upgrading:
Discover it® Secured Card - No Annual Fee

Discover it® Secured Card - No Annual Fee

Discover it® Secured Card - No Annual Fee

Apply Now on Discover's secure site
  • Recommended Credit Score
  • 350
    629
    Poor
  • Card Details
  • Pros

    • No annual fee
    • Reports to the three major credit bureaus
    • Offers rewards and a sign-up bonus
    • Chance to upgrade to unsecured account after 8 months

    Cons

    • Requires minimum deposit of $200
    • Discover cards not widely accepted outside the U.S.

    Annual Fees

    $0

    APR

    • APR: 23.99% Variable APR
    • Cash Advance APR: 25.99%, Variable

    Bonus Offers

    Get a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically.

    Intro APR

    • 10.99% on Balance Transfers for 6 months
  • Additional Information
    • No Annual Fee, cash back on every purchase, and helps you build your credit with responsible use.
    • Your Secured Credit Card requires a refundable security deposit up to the amount we can approve of at least $200 which will establish your credit line. You will need to provide your bank information when submitting your security deposit.
    • We will automatically begin reviewing your account starting at 8 months to see if we can transition you to an unsecured line of credit.
    • Earn 2% cash back at restaurants & gas stations on up to $1,000 in combined purchases each quarter. Plus, 1% cash back on all your other purchases.
    • Get a dollar-for-dollar match of all the cash back you've earned at the end of your first year, automatically.
    • New! Receive FREE Social Security number alerts-Discover will monitor thousands of risky websites when you sign up.
    • Click "APPLY NOW" to see rates, rewards, FICO® Credit Score terms, Cashback Match™ details & other information.

The Discover it® Secured Card - No Annual Fee has been a NerdWallet favorite because it offers rewards — a rare feature on secured credit cards. The card gives you 2% cash back on up to $1,000 worth of combined spending per quarter at restaurants and gas stations, and 1% back on all other spending. The card has a bonus offer: Get a dollar-for-dollar match of all the cash back you’ve earned at the end of your first year, automatically. It also offers a path to upgrade: After eight months, Discover begins reviewing your account to determine whether your account can be upgraded to an unsecured card. The annual fee is $0. The minimum deposit is $200; the maximum is $2,500.

» MORE: Full NerdWallet review of the Discover it® Secured Card - No Annual Fee

Best for low deposit:
Capital One® Secured Mastercard®

Capital One® Secured Mastercard®

Capital One® Secured Mastercard®

Apply Now on Capital One's secure site
  • Recommended Credit Score
  • 350
    629
    Poor
  • Card Details
  • Pros

    • Qualify with limited / bad credit
    • No annual fee
    • No foreign transaction fee

    Cons

    • No rewards
    • High APR

    Annual Fees

    $0

    APR

    • APR: 24.99% Variable APR
    • Cash Advance APR: 24.99%, Variable

    Bonus Offers

    None

    Intro APR

    • N/A
  • Additional Information
    • No annual fee, and all the credit building benefits with responsible card use
    • Unlike a prepaid card, it builds credit when used responsibly, with regular reporting to the 3 major credit bureaus
    • You will get an initial $200 credit line after making a security deposit of $49, $99, or $200, determined based on your creditworthiness
    • Get access to a higher credit line after making your first 5 monthly payments on time with no additional deposit needed
    • Easily manage your account 24/7 with online access, by phone or using our mobile app
    • It's a credit card accepted at millions of locations worldwide

The Capital One® Secured Mastercard® allows you to qualify for a $200 credit limit with a deposit of $49, $99 or $200, depending on your creditworthiness. You can increase your limit to a maximum of $1,000 by depositing more money before activating the card. These deposits can also be made in installments as long as the full deposit is made within the 80 days of your card approval. Make your first five payments on time, and you could gain access to a higher credit limit with no additional deposit. The card has a $0 annual fee. Approval standards are tighter for this card than for some others. You must have a bank account, and your monthly income must be at least $425 more than your rent or mortgage payment.

» MORE: Full NerdWallet review of the Capital One® Secured Mastercard®

Best for no credit check or no bank account:
OpenSky® Secured Visa® Credit Card

OpenSky® Secured Visa® Credit Card

OpenSky® Secured Visa® Credit Card

Apply Now on Capital Bank's secure site
  • Recommended Credit Score
  • 350
    689
    Poor - Average
  • Card Details
  • Pros

    • No credit check required
    • Doesn't require a bank account
    • Reports to the three major credit bureaus

    Cons

    • Has annual fee
    • High ongoing APR
    • Requires $200 mininum deposit

    Annual Fees

    $35

    APR

    • Purchase: 18.39%
    • Penalty APR: Up to 22.50%
    • Cash Advance APR: 18.39%

    Bonus Offers

    None

    Intro APR

    • N/A
  • Additional Information
    • No credit check necessary to apply. OpenSky believes in giving an opportunity to everyone.
    • The refundable* deposit you provide becomes your credit line limit on your Visa card.  Choose it yourself, from as low as $200.
    • Build credit quickly. OpenSky reports to all 3 major credit bureaus.
    • 99% of our customers who started without a credit score earned a credit score record with the credit bureaus in as little as 6 months.
    • We have a Facebook community of people just like you; there is a forum for shared experiences, and insights from others on our Facebook Fan page. (Search “OpenSky Card” in Facebook.)
    • OpenSky provides credit tips and a dedicated credit education page on our website to support you along the way.
    • *View our Cardholder Agreement located at the bottom of the application page for details of the card.

The OpenSky® Secured Visa® Credit Card card doesn’t require a credit check, and you can pay your bill with a debit card, wire transfer, money order or check. That’s helpful if you don’t have a bank account. The minimum deposit is $200, and the maximum is $3,000. Two potential downsides: The card’s annual fee is $35, and OpenSky doesn’t have any options for upgrading.

» MORE: Full NerdWallet review of the OpenSky® Secured Visa® Credit Card

Best for low interest and fees:
Digital Federal Credit Union Visa Platinum Secured Credit Card

Digital Federal Credit Union Visa Platinum Secured Credit Card

Digital Federal Credit Union Visa Platinum Secured Credit Card

Apply Now on Digital Federal Credit Union's secure site
  • Recommended Credit Score
  • 350
    850
    Poor - Excellent
  • Card Details
  • Pros

    • Qualify with limited / bad credit
    • No annual fee
    • No foreign transaction fee

    Cons

    • No rewards

    Annual Fees

    $0

    APR

    • Purchase: 12.50%
    • Penalty APR: Up to 18.00%
    • Cash Advance APR: 12.50%

    Bonus Offers

    None

    Intro APR

    • N/A
  • Additional Information
    • Secured card rates well below the national average
    • Borrow against your DCU savings account
    • No Annual Fee*
    • No Fees or Higher Rates for Cash Advances and Balance Transfers
    • Works with Apple Pay®, Android Pay™, and Samsung Pay
    • Insurance, car rental, travel, and warranty benefits
    • Optional Overdraft Protection On Your DCU Checking
    • Buy online easily and safely with Visa Checkout
    • Embedded EMV chip to protect your card information

This Digital Federal Credit Union Visa Platinum Secured Credit Card‘s annual fee is $0, and it has no foreign transaction fees, cash advance fees or balance transfer fees. The ongoing APR is 12.50%, which is about half the rate of many major secured credit cards and better than what’s available on many regular cards. Unlike other cards, it doesn’t have a limit on your credit line; if you have bad credit and extra cash to use for a deposit, you can get a fairly high credit limit. However, this card is available only to Digital Federal Credit Union members. If you don’t already meet the eligibility requirements through your employer or place of residence, you can join by becoming a member of an eligible organization for a fairly low membership fee. (See membership rules here.)

» MORE: Full NerdWallet review of the Digital Federal Credit Union Visa Platinum Secured Credit Card