Executive Summary -
One of the most popular cards among those looking to build or rebuild their credit history. It's fees and rates are very reasonable and you do get basic "MasterCard" benefits.
In the credit card world, there are a handful of major issuers that dominate the industry. The the main segment that the major issuers are trying to target are consumers with great credit scores (ie prime customers). Those who have taken a hit to their credit will find that very few "main stream" issuers will accept their applications.
What ends up happening is that they tend have to looking for credit cards in the murky world of subprime land. Sub prime issuers tend to issue unsecured cards with high fees and rates. Thankfully, Capital One is one of the exceptions among mainstream issuers. They are more "credit friendly" and have a range of cards that will suit folks within the entire credit spectrum. Sure, they have cards like the Venture Rewards for prime customers. But they also have cards for those with no or bad credit history. And this card (which is their secured card) happens to be one of them.
How Does A Secured Card Work and how is Capital One different?
- For those of you who aren't too familiar with a secured card, here is a brief explanation of how this card will work. You will have to put a deposit with the card. This deposit acts as a collateral and becomes your credit limit. Typically will have to deposit a minimum of $300 (up to a maximum of $5,000). You will earn interest on your deposit (with most issuers anyway). You will observe from the example just given that the amount that you deposit is the amount of your credit line.
Capital One takes a slightly different approach to this. Yes, you will still have to put in a minimum deposit. The amount required will either be $49, $99 or $200, which will depend on their assessment of your credit. Once you will deposited your minimum deposit, your initial credit line will be $200 regardless of how much you are required to deposit. That means that unlike other secured cards, you can actually get a credit line that is "slightly" higher than the deposit amount. If you require a higher credit line, then you have to increase your deposit amount over the minimum requirements and the increase will be a one for one match with the extra deposit. With Capital One, you can deposit up to $3,000.
Will This Be Eventually Converted To An Unsecured Version
- One of the most common question we get is whether this will eventually become an unsecured card. The answer appears to be No, from the feedback gotten from card members. But what may happen is that your credit lines may get increased over your deposit amount if you develop a good history.
Helps Build Your Credit History
- Unlike prepaid cards, this card will help you to rebuild your credit history because your payment history will be reported to the three credit bureaus. You can also enroll in their CreditInform® program which is actually a credit monitoring tool to help you with rebuilding efforts.
Compared To Peers
- There a quite a few ways to compare this. The first question we ask is whether the fees and rates are competitive. And I would say that they are. The annual fee is only $29 and the APR is 22.9% (not uncommon). Our advice would be to never carry a balance but instead pay off everything each month. The one good thing about this card is that if you have bad credit or even if you have just emerged from bankruptcy, you could get approved for this card. This is in contrast to other secured cards issued by Citi and Wells Fargo (for example) that will only approve you if you have no credit, but will likely turn down an application if you have bad credit.
This card is also slightly different from others in that the initial deposit that you pay may be slightly less than the initial credit line that you might be given. While the difference is small, it is better than most of its' peers.
What Do We Think?
- If your credit has suddenly taken a downturn, you have to rebuild it as quickly as possible. There may be reasons whey this has happened. Perhaps you were foreclosed on your home or have just emerged from bankruptcy. Maybe a nasty divorce where separation of credit cards and bills were not handled properly, or a job loss has caused your credit to take a plunge. The quickest way to rebuild your credit is to use a credit card responsibly. But getting rejected for applications or having to swallow the huge fees many subprime offerings charge is not the most pleasant experience.
This is where a card like this from Cap One can help you to slowly rebuild your battered history. It is very cost effective (ie low annual fee) and your payments will be reported to the three major credit bureaus. This is also a great card to get if you have no credit history.