Secured credit cards offer bad credit borrowers with a way to start over. A few cards even offer to skip the credit check.
If you have bad credit or are recovering from bankruptcy, it can be nearly impossible to get a traditional credit card. Unfortunately, it can be difficult to function in today’s society without a credit card. On top of that, in order to rebuild your credit, or build new credit, you have to demonstrate that you are a responsible borrower, which is hard to do when nobody will give you a loan.
One solution is a secured credit card. They’re made for bad credit or no credit borrowers.
But like other credit cards, most secured credit cards require a credit check. That means a hard inquiry on your credit. That can have a negative impact on your credit score.
A couple of secured cards, though, offer to skip the credit check altogether.
What is a Secured Credit Card?
A secured credit card is a credit card backed by a cash deposit. You deposit an amount of money when you open your account, usually equal to the card’s credit limit. The minimum credit limit, and corresponding deposit, is generally at least $200.
When you close the account, you’ll get your deposit back if you’ve paid the balance. In the meantime, you are able to use the card in any situation where a credit card is needed. Provided you pay on time, you’ll establish a history of on-time payments–the biggest factor to improve your credit score.
Once your credit score is back in the good range, you may be able to upgrade your card to a standard unsecured card. Or you can use your higher credit score to get a new unsecured card from a different issuer.
Annual fees are common with secured cards but are generally pretty low, no more than $50.
Secured Cards with No Credit Check
Although secured cards are designed for people with lower scores, most issuers still run a credit report as part of the application process. Two that don’t are the Open Sky Secured Visa Credit Card and the Self - Credit Builder Account + Secured Visa® Credit Card.
The Open Sky Secured Visa offers a credit line equal to the deposit that you choose, from $200 to $3,000. Like most secured cards, it has an annual fee. But unlike most cards, Open Sky doesn’t conduct a credit check to apply.
The Self Visa Credit Card is a little different than other cards. It’s available only to those who have a Self Credit Builder Account. The Self Credit Builder Account is another credit-building tool. It allows credit-challenged borrowers to get a loan, but the loan amount is set aside in a CD until the loan’s paid off. After that you get the amount paid, less fees and interest.
Think about the Credit Builder Account as a way to make loan payments in advance and get the proceeds at the end. The advantage over just saving? Self reports your payments to all three major credit bureaus, helping you build or improve your credit.
The Self Visa Credit Card is available to Credit Builder customers after three on-time payments and a minimum of $100 saved. You can then choose a credit line for your Self Visa Credit Card up to your Credit Builder savings which will act as your security deposit for the card.
Like Open Sky, the Self Visa Credit Card doesn’t require a credit check to get the card.
How Much Does a Hard Inquiry Affect Your Credit?
So, with Open Sky and the Self Visa, no credit check is required. But how important is it anyway?
Well, a hard inquiry can drop your score by 5 to 10 points. The lower your score, the worse you are going to get dinged. The whole purpose of a secured credit card is to improve your score. So, starting on the path to improvement without an additional obstacle may well be worth it.
But as FICO notes, the effect of inquiries is a small factor in determining your credit score, and the impact is temporary. The far more important factors to your score are a history of on-time payments and low credit utilization (keeping your credit card balances less than 30% of the limit).
So, while secured credit cards with no credit check offer the extra benefit of not starting with a negative, that shouldn’t be the only consideration.
Other Factors to Consider When Choosing a Secured Credit Card
All secured credit cards can serve the same core purpose–to establish a history of on-time payments. That’s the most important factor in driving up your credit score. Cards like the Open Sky Visa and the Self Visa Credit Card offer the benefit of no credit check.
But consider other factors such as
- Fees. Most secured cards charge an annual fee–generally less than $50. All cards charge interest on the balance if you don’t pay it off. Don’t worry too much about APRs though. You shouldn’t be carrying a balance. Period.
- Make sure the card you choose has a grace period. The grace period is the time you have to pay your balance each month without interest.
- Can you upgrade to an unsecured card? Some companies even review your card for upgrade automatically.
- How much of a deposit can you afford? The higher the deposit, the more you can use the card without going over your limit. The maximum deposit varies by card, as does the minimum. Very few will let you go over $5,000.