Whether you’re trying to rebuild your credit or have no credit history and are establishing some, it can sometimes be tough to get credit approval. Fortunately, many of the best cards for rebuilding credit don’t even require a credit check. These cards are called secured cards, and unlike a debit or prepaid card they actually help you establish credit history.
With secured cards you’ll typically go through an approval process that doesn’t record a credit inquiry (this can vary by card, so double check before applying) and then make a refundable deposit that serves as your credit line. What makes these the best cards for rebuilding credit is that they report transactions to all three major credit bureaus, just like a credit card would.
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Having a secured line of credit also helps teach good financial habits, which can be invaluable for younger spenders trying to learn to stay within a budget and for more experienced spenders trying to relearn good habits.
Features of the Best Cards for Rebuilding Credit
Most major financial institutions offer secured cards and if you have an existing relationship with a national bank, that’s a good place to start because it can make linking existing accounts for the initial deposit and ongoing payments easier. It’s also helpful to be able to see a snapshot of your financial health all in one place. So, what should you look for when trying to find the best cards for rebuilding credit?
No or low annual fees – Some cards, like the Citi Preferred Mastercard, are available with no annual fee, although Citi will conduct a credit inquiry and will not extend a card offer if you’ve had a recent bankruptcy. Other cards, such as those issued by First Progress, are specifically designed for credit rebuilding, which can make them more attractive for borrowers with a negative credit history. Cards issued by First Progress are tiered by APR and the annual fee, which ranges from $29-49.
Affordable APR – Secured cards typically don’t offer promotional APRs and can command higher rates than cards designed for borrowers with good or excellent credit. That being said, it’s still possible to find cards at reasonable rates; the aforementioned First Progress offers cards with APRs starting as low as 9.99%. If you find yourself approved for a card with a higher APR, do your best to pay off your entire balance each period to minimize the amount of interest you accrue. Alternatively, minimizing your secured card use can also keep you from racking up interest charges while also showing good credit usage to the major bureaus.
Refundable deposits – The best cards for rebuilding credit will typically accept a refundable deposit that becomes your credit line. These amounts generally start at $200, but some issuers will allow you to deposit up to $2,500-$3,000 to establish a higher credit limit. Other issuers may allow only the initial $200 deposit but then allow you to raise that limit after making regular minimum payments. If you’re shopping for a secured card make sure to use a card with a refundable initial deposit and read the fine print to see the conditions that will permit the lender to tap into that initial deposit (missed payments, account closures, etc.).
Cash-back or travel benefits – Secured cards typically do not offer expansive benefits (the Discover IT Secured Card is one exception that offers reasonable cash-back rewards), but the issuer may offer other minor benefits such as no foreign transaction fees, fraud coverage, or credit tracking services. Due to the nature of secured cards, you should prioritize the annual fees and APR over benefits, but if you’re shopping around these are always nice to have.
Secured cards are the best cards for rebuilding credit because they’re designed with new borrowers and borrowers with less favorable credit history in mind. If you’ve successfully paid down debt, set aside some emergency funds, and are looking to reestablish credit, secured cards are a great next step.
Have you ever helped a new borrower establish credit with a secured credit card?