We typically talk about high tier and travel cards, but for a lot of people who are still building credit or don't have credit, they need to start with a secured credit card.
Secured cards are useful if you don't have a credit history and need to build your score from scratch. Another scenario is for people who have ruined their credit history in the past and looking to repair it.
There are a lot of options available, but we're going to focus on the big banks. We're looking at:
Bank of America
You can view secured card offers at the end of the post.
One thing I want to emphasize is that the interest rate and late fees shouldn't matter because the idea of a credit card is to pay off your cards in full every month. The biggest complaint I hear from viewers is that their credit limit is only $100 with the secured card, but the goal should be to build credit and not spend a ton on the card.
Minimum Security Deposit
Looking at the minimum secured deposit, Capital One is the lowest at $49. The highest minimum is a tie between US Bank, Bank of America, and Wells Fargo. For secured cards, your credit limit is based on your deposit (i.e., if you deposit $300, your credit limit is $300).
Maximum Security Deposit
The maximum credit limit and deposit ranges from $2,500 to $10,000. Citi and Discover have the lowest maximum limit at $2,500, and Wells Fargo has the most at $10,000.
Bank of America, Capital One, Citi, and Discover do not have annual fees. U.S. Bank and Well Fargo have an annual fees of $35 and $25, respectively.
Return on spend
Return on spending is not a primary focus because you're trying to build credit and not optimize for points. Secured cards do not give you cash back, except Discover.
The Discover secured credit card gives you:
2% gas and dining (cap of $1,000 per quarter)
1% on everything else
First year Cashback Match makes it: 4% and 2%
The caveat is that Discover is not accepted everywhere. Most major retailers and establishments will accept Discover. In any situation that Discover it not accepted, use a debit card to pay instead.
We're going to look at the product change options for each card once you graduate. Keep in mind that you’ll need to demonstrate “good behavior” on the secured credit card to move on to an unsecured card.
“Good behavior” entails paying the credit card on time and not defaulting or filing for bankruptcy. Again, the point of a secured card is to demonstrate how responsible you are with credit.
Bank of America
For Bank of America, I recommend graduating to the Cash Rewards card to pick your own 3% cash back category.
There’s not a set graduation timeline for the Capital One secured card. Data points online have shown people graduating anywhere from 6-18 months.
With Capital One, you can also product change to any card. I recommend going for the Capital One Venture to earn 10x on Hotels.com purchases through Jan 2020. The Venture was recently revamped to add airline transfer partners.
Learn more about the Venture in this post.
Citi typically graduates cardholders after 18 months of having the secured card.
Citi has a lot of options for unsecured cards. My recommendation is to product change to the Costco card, the Citi Double Cash Card, or the Citi Dividend card. All of these cards earn more than 2% cash back either as a baseline or different categories.
Discover typically graduates cardholders after 8 months.
With Discover, your product change options are limited because they don't have that many cards. I recommend doing a product change to the Discover It card to earn 5% on rotating quarterly categories.
U.S. Bank typically graduates secured cardholders after 12 months, and the odds depend on your credit score.
For U.S. Bank, I recommend product changing to the U.S. Bank Cash+ card to optimize for cash back.
I would avoid getting a Wells Fargo card because each product change is a hard inquiry. They close your account to open a new one.
If you do decide to get a Wells Fargo card and graduate from the secured card, the Wells Fargo Propel has decent spending multipliers.
Looking at the short-term, Capital One and Discover are the unsecured cards I recommend since they both have low deposit requirements to get started. Go for the Discover if you want to earn rewards.
The big selling point for Citi is that they have a lot of benefits that come with the unsecured cards like price protection.
In the long-term, I suggest considering the Bank of America, Citi, or Discover cards if you want a keeper card that graduates to decent cards that earn point rewards.