A credit card for bad credit that skips the deposit often makes up for it with fees, and unlike a secured card’s deposit, fees never come back. Unless that card’s fees total zero, a no-fee secured card costs less. Before you apply, add up the fees for the card’s first two years from its pricing table.
Two years, because these cards push part of the cost into the second. The Credit CARD Act caps the fees an issuer can require in a card’s first year at 25% of the starting credit limit, and the cap doesn’t cover a program fee paid before the account opens.
Say you’re approved for a $300 credit limit. You pay a $95 program fee to open the account, and a $75 annual fee, the most the cap allows, goes on the card on day one. That leaves $225 to spend. In year two the annual fee drops to $48, but an $8.25 monthly fee starts. The fees come to $170 the first year and $147 the second, $317 in all.
A no-fee secured card with the same $300 limit would hold a $300 deposit instead and give it back when you close the account paid in full or the issuer upgrades you to a regular card. The no-deposit card still takes $95 up front, before you can use it.
On a real offer, the card’s pricing table lists its fees. Add the ones you can’t avoid: the program fee, the annual fee for the first year and after, and any monthly fee from the month it starts. Leave out penalty fees like late fees, but note any fee for a higher limit. Some cards charge 25% of the increase.
A card with no deposit and no fees beats both, and fair credit can be enough to get one. Check a big bank’s prequalification page first, since it shows your offers without affecting your credit score. If $300 is more than you can spare, some secured cards take a smaller deposit, like the Capital One Platinum Secured.
If you end up with a fee-charging card anyway, pay its fees off with your first statement, before the issuer charges interest on them, at rates as high as 36%.
If you’re choosing a secured card, compare the best secured credit cards.
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