Opening Accounts & Getting Approved
Step 4
When you get to this point, you may have already noticed an improvement, but if you haven't yet, get ready. Lets say for example you have no open accounts, where are you going to go to open a new credit card? Especially when you take into consideration that lenders have made it much tougher to obtain new credit. You do not want to apply to multiple offers and have multiple denials, this will only hurt your credit. Inquiries stay on your report for 2 years, and having several inquiries will make you look desperate for credit. Lenders do not want to lend money to someone desperate, but we have a plan that will get you around all of this.
Positive account information in your credit report is essential, and having an open trade-line (credit account) in good standing is one of the best ways to see improvement in your score.
Details:
This step may require some money out of pocket on your part, but it will pay dividends for you in the long run. What you should look into is opening a secured credit card. This option is as close to guaranteed approval as one can ask for. A secured credit card is really no different than a traditional unsecured credit card except for the fact that the bank is holding your money as collateral. No one except you and the issuer of the credit card will know it's a secured card. You can use it anywhere a regular card can be used. Best of all, some secured credit cards get reported monthly to the credit bureaus.
Not all secured cards are created equal. There are pros and cons to almost all of them, and we encourage you to look into several of them before you decide on one. We have done some research ourselves and will be mentioning a few options below.
A few of the pros and cons to look for are the fees, interest rate, and whether or not they report to the bureaus. While we haven't looked into all secured credit cards, we have come up with a few of our top picks below out of the many we have looked into and posted a short review of each. We would strongly recommend clicking on the highlighted name or image and read their full terms and conditions yourself.
Our Top Secured Credit Card Picks
New Millennium Bank Secured Platinum Visa®/MasterCard®Pros/Cons: New Millennium Bank Card has currently a 19.50% interest rate and a $59 annual fee, plus a one time $99.95 application fee, so the fees are a bit pricey. This card does have benefits, which is a rare find in secured cards, plus you do earn interest on your deposited money. You need to deposit a minimum of $300, which is reasonably low, they report to the 3 major credit bureaus, and basically guaranteed approvals make this an attractive card.
Public Savings Bank Classic Secured VISA Card
Pros/Cons: Public Savings offers no annual fees but they do have a one time $79 set up fee. An interest rate currently at 11.24% after an introductory rate of 0% for 6 months. There is only a $200 minimum deposit and according to their website they report to 3 major credit bureaus. We assume that's Equifax, Experian, and Transunion. Public Savings does not require any income verification, employment verification, or credit checks, so it's as close to a guaranteed approval as one could ask for.
Next Millennium MasterCard®
Pros/Cons: Slightly higher fees but may not be that bad considering you are earning interest on your deposit. Credit reporting, not needing a large initial deposit, and best of all - earn interest on your deposited money - makes this card a good choice.
Platinum Zero™ Secured Visa® Credit Card from Applied Bank®
The name says it all: Zero credit requirments, Zero interest on purchases, Zero income requirements, and Zero turn downs - all of this makes this an attractive offer. Also, based on our research, we're fairly certain they report your monthly payments to both experian and transunion which is also a good benefit.
Pros/cons: The pros are obvious, easy approvals and no interest on purchases. However, there is a minimum of $500 needed to open an account, which is slightly higher than average and there is a $9.95 fee per month. On a side note, having the 500 dollar minimum will give you a 500 dollar credit limit and you may get a slightly better boost in your score for the higher credit limit/lower utilization instead of a 200 or 300 dollar credit limit. All in all, this is a pretty unique and decent option, especially if you were going to carry a balance, because you know the only extra money you're out is the monthly fee, and no extra fees or interest on your balance. That makes this card easy to manage (payment wise) and never any surprises.
HSBC
What we like about both HSBC & Orchard (the card below), is they will run a pre-approval on you without pulling a hard inquiry. This is similar to a "promotional inquiry" where you get pre-approvals in the mail. If they can approve you for an unsecured card they will, but if not, they will offer you a secured card. Best of all, there's not a hard pull for them to check your eligibility for an unsecured card. According to their website, the interest rate is a variable rate between 12.99% and 19.99% depending on credit worthiness. There is an annual fee of $35 and we are not sure which credit bureau(s) they report to yet.
Orchard
Orchard Bank ranks best in our picks because of the lower fees and interest, as well as the way they try to first approve you for an unsecured card. As soon as we get concrete evidence on which credit bureaus they report to, we will update this list. Orchard waives the $35 annual fee for the first year, you need a minimum deposit of only $200 and the interest rate is a variable 7.90% (very low for a secured card). The link above or Orchard Bank Classic MasterCards takes you to an all-in-one site. Orchard will try to approve you for an unsecured credit card if possible, if not, you will be offered their secured card, as mentioned above. Best of all, Orchard Bank won't do a hard pull on your credit to see what you qualify for, instead, they do a soft pull to see if you "pre-qualify" for an unsecured credit card. This is one of many reasons we like Orchard Bank. Low fees, low interest, and the way in which they first try to approve you for an unsecured card makes Orchard our favorite pick.
Do note: The unsecured card offered by Orchard/HSBC has different fees, rates, and/or terms & conditions than their secured card. So if you receive an approval for their unsecured card, be sure to read the terms and conditions. Just a reminder: read the terms and conditions for any card you are signing up for.
Another side note: The FICO scoring system likes to see a "credit mix" or in other words, a combination of credit accounts, including at least 2 open revolving accounts (credit cards). So getting 1 secured card will likely give you a boost in your score, but getting 2 cards will likely give you a larger boost.
Honorable Mentions:
Wells Fargo Secured Card
We
haven't yet been able to confirm with absolute certainty which credit
bureaus they report to, but they offer a very low annual fee of only
$18 and a decent interest rate of 18.99% variable. They do require a
slightly higher minimum deposit than other secured credit cards with a
minimum of $300. All in all, this is a fairly good option.
Pros/cons:
Wells Fargo takes a while before they will turn your "secured card"
into an "unsecured card." Based on our research, it is generally taking
12-18 months before they will change it to an unsecured card. Depending
on how the new credit card laws are interpreted for 2010, the secured
cards from Wells, as well as potentially others, may not convert
secured cards into unsecured cards. This could be looked at as a con,
but they do have good rates, decent fees, and a fairly low initial
deposit requirement. There also may be minimal credit criteria needed
to get approved for this secured card.
Citi Secured Mastercard
Again,
we cannot confirm yet which bureaus they report to, they are vague with
this information on their site. Based on the wording from their site,
it looks as though they report to at least 2 major credit bureaus. The
have an annual fee of only $29 and a variable interest rate of 13.24%.
A minimum of $200, maximum of $25,000 needs to go into a certificate of
deposit. Your credit limit is equal to the amount you place in your CD.
Pros/cons:
the secured card may eventually become an unsecured card, but it
usually takes 18 months before Citi will even review your credit
performance for an increase or offer an unsecured card (based on our
research). We have heard a few cases where it's taking even longer then
that with perfect payment history. This could be looked at as a con,
but they do have decent rates, decent fees, and a low initial deposit
requirement. There also may be minimal credit criteria needed to get
approved for this secured card.
First Premier Bank
First
Premier offers several cards under several names, which include:
Aventium, Centennial, and First Premier Bank Card. They offer credit
cards that are secured and ones that are unsecured, and First Premier
Bank tailors to people who have less than perfect credit. The secured
card requires a minimum deposit of $200 at 19.9% interest plus a $69
annual fee. One of the best things they offer is monthly reporting to
all 4 major credit bureaus. If you take that into account, plus, if you
make a commitment not to carry a balance or at least a low balance, the
19.9% interest rate won't matter much. The only negative is the $69
annual fee, but that is a fairly small price to pay for building solid
credit history with all 4 major credit bureaus. They do offer unsecured
credit limit increases on this card as well, provided you have good
payment history with them over time.
We also have a Credit Cards tab under our Credit Guide, which has just about every credit card offer all in one place. Whether you are looking for more secured credit cards or balance transfers or even business credit cards, chances are you can find them there.
We encourage you to do a little homework and find the card that best suits you. Opening a credit account, especially if you have no open, current credit accounts should give you a nice boost in your credit score. Just getting them will not be the answer. You must make your payments on time, every time. Payment history accounts for 35% of your score. Also, remember that utilization is a big factor (30%) in your credit score. Keep your balance low if you carry one at all, a good rule of thumb is keep your balance below 10% of your limit. So if you have a $500 credit limit, you would want a $50 or less balance on that card.
There is really only 2 ways to look at this, 1 way is in a negative way, you can think about depositing money into an account for the bank to charge you fees and interest on or you can look at it in a positive way. The positive way is that you are depositing money into a bank, and at any time you can close this account and get your money back (provided you have no balance). By setting up a secured card and paying the fees now, you are working towards an improved score. At some point, you won't need to pay high fees, and it won't be long until you get great offers. This is also a great learning experience, as it teaches to pay back saved money. If you can continue using the same principles with your secured card as you do with your savings account (if you have a hard time saving money), you could start building up a nice savings account. Like we said earlier, there are pros and cons to all of these choices, but when you start weighing out all of the benefits, the pros out weigh the cons.
Once you apply and open a card or 2 that you like, you will be ready to move on to the next step. The good news is you have made it this far, and it won't be long now until you start noticing some nice improvements. Click on Step 5 to get to the next step.
Be sure to read our Credit Facts and Credit Info. Knowing what helps your score and what hurts it is the key to building and maintaining a good credit score.
Now that you have opened a credit card or two, it is vital to keep on top of it. Just paying the minimum payment will cost you and you'll be paying over a long period of time. Visit our Credit Calculators page to find out what paying the minimum will mean to you.