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Having bad credit often goes hand-in-hand with being short on cash — but not always. You might be one of those people who has a fair amount of money in the bank, but can’t qualify for a traditional credit card due to spotty credit history.
That’s where the Wells Fargo Secured Visa Card comes in. As with most secured credit cards, users must provide a security deposit as collateral, and your credit limit is equal to your deposit. But unlike most secured cards, the Wells Fargo Secured Visa Card offers a credit limit of up to $10,000.
Making smart use of the Wells Fargo Secured Visa Card’s high credit limit
If you have the money to make a relatively large deposit on a secured credit card, we recommend you do so.
The Nerds don’t suggest that people trying to rebuild their credit overspend or rack up high credit card balances. The reason you should go for the higher limit if you can swing it is all about your credit utilization ratio, the amount of your available credit that you’re using at any given time. A lower utilization can make a big difference in your credit score.
Say you need to spend $1,000 on plane tickets, and you put it on your card. If you have a credit limit of $2,000, you’re using 50% of your available credit. Even if you pay your balance in full when the bill comes, having such a high utilization ratio even briefly could have a negative effect on your credit score. That’s because utilization influences the 30% of your FICO score tied to the amounts you owe.
Now let’s say you spend that same $1,000 on a credit card with a limit of $5,000. In that case, you’re using only 20% of your available credit — a much better credit utilization ratio. With a $10,000 limit, the ratio drops to 10%.
Since most people get secured credit cards to improve their credit score, using only a small amount of your available credit is important. But it’s much harder to maintain a good utilization ratio if you have a low credit limit. On a card with a $300 limit, for example, a week’s worth of groceries for a family could easily push you over 50%.
Lower fees, slightly lower interest
In addition to its high maximum credit limit, the Wells Fargo Secured Visa Card avoids many of the common pitfalls of secured credit cards. For one thing, its $25, which is reasonable. It also has a slightly better APR than some of its secured competitors: The ongoing APR is 19.99% Variable.
Even so, the smart move is to pay your bill in full every month and avoid carrying a balance at all. It keeps your utilization from getting out of control, and it can save you big money on interest.
Should you get it?
The Wells Fargo Secured Visa Card is great for people with significant assets but bad credit. If you want the flexibility of being able to use a credit card for larger purchases without letting your credit utilization ratio get too high, this card is worth carrying.
This article has been updated. It was originally published on Jan. 5, 2015.