Q: I'm looking for the best secured credit card that will help build my credit score, and that will report to all three credit bureaus. I also want it to convert to an unsecured card.
A: Secured credit cards provide one of the easiest ways for you to rehabilitate your credit, as long as you can afford to keep some cash on deposit. Stick with one of these name brands and you'll avoid locking in high rates and fees.
If you've struggled with credit, don't be surprised if you get some crazy looking credit card offers in the mail. Most of them say things like "get the credit you deserve," but they carry some outrageous fees. The Credit CARD Act of 2009 reined in a lot of the worst offenders, but we still see folks get taken in by fly-by-night credit card offers that require hefty application fees and transaction charges.
After all, what you're trying to do here is convince a lender that you're trustworthy enough to earn an unsecured credit card over the next year or two. You're also confident enough in your earning ability to leave $300 or more in a savings account during your rebuilding period. It's a sacrifice, but one that can save you hundreds of dollars a year in home loan finance charges and insurance premiums when you get it right.
Therefore, why should you have to pay more than a few dollars a month for the privilege of borrowing your own money? Older accounts improve your credit score, so you'll want to work with a company that will eventually extend your credit line beyond your initial deposit. I can suggest checking out terms and conditions from a few banks that we feel have taken a fair approach to secured credit cards:
Wells Fargo. $25 annual fee, with no application fee and periodic account reviews for unsecured credit.
Bank of America. $39 annual fee, with no application fee and an account review after 12 months of on-time payments to determine if you qualify to have your security deposit returned.
Treat your secured credit card like a prepaid debit card if you want to maximize the benefits to your credit score. Keep your monthly balance low: just a few dollars a month will report activity to all three credit bureaus without putting the rest of your credit profile at risk. Make your payments on time, and these lenders will consider returning your security deposit.