Episode 1 of My Credit Journey: Choosing the Right Secured Card for Me
Once upon a time, in a land far, far away…I began my credit journey. I applied for a rewards credit card offer. It was something of a spontaneous decision, but the credit card I’d used for several years had been deactivated by the issuer; the card was no longer available, and I had been using a debit card for all purchases for quite some time. I realized that I could be earning rewards for the same purchases I was making with my debit card and judged it apropos to start capitalizing on all of the money I was spending with a dining rewards card. I’ve established credit, as I am a home owner with a mortgage and a car payment; I’ve had several credit cards, too. Due to a snafu a few years ago when I was young and didn’t know any better (I ran up debt on a credit card during a brief stint of unemployment), my credit score isn’t the best – but it was high enough to qualify for a mortgage, so in my innocence I thought I’d easily qualify for a rewards card program. Much to my chagrin, I was wrong! My girlfriend and I are, for lack of a better term, foodies. We enjoy cooking, trying new restaurants, and above all – we love to eat. A fair amount of our weekly spending goes to buying food to cook at home, or ordering takeout, and we tend to dine out three or four times a month in addition to cooking and doggy bags. So, I wanted to find a credit card that had a rewards program that would allow me to earn rewards for eating. I did some research, and settled on a rewards credit card that suited my lifestyle: the Uber Credit Card. The Uber Visa Card is an extremely versatile cash back card that earns 4% back on dining and Uber Eats – a reward I’m eager to capitalize on, as I’m sure you can imagine – as well as 3% back on hotel and airfare, 2% back on Uber, and much more. I was excited to begin using this new credit card to earn cash back on my favorite tasty treats, but I was also apprehensive. I worried that my previous credit card woes might come back to haunt me, despite my recent mortgage approval – and that nagging feeling at the back of my mind turned out to be right. It wasn’t long before I received correspondence from Barclays, the issuer of the Uber Visa Card, stating that they had declined my credit card application.
Why do card issuers decline credit applications?
There are many reasons that a credit card application can be denied, and while they vary from issuer to issuer, there are also several common themes. Many card issuers view an applicant with no credit history, or bad credit, as a poor choice for approval – someone with no credit history is often deemed to be a risk, since their behavior is not known and they do not have any payment history; someone with bad credit is considered a risk for more obvious reasons. If you’re like me and racked up debt that you haven’t been able to pay in full just yet, you may fall into the latter category. Typically, within 7 to 10 business days, the card issuer will send a letter detailing the specific reason (or reasons) that your application was denied. Common reasons are recent late payments, high credit card balances, or too many hard inquiries on your report. Remember, a good credit score is just one factor that banks use when deciding who to extend credit to. A credit card represents unsecured debt for a bank – if you don’t make your payments, they can’t take possession of an asset, like they could with a mortgage (an example of secured debt). A single missed credit card payment, or forgetting a bill that ends up going to collections, won’t drop your credit score by more than 10 or 20 points – but it could be the deciding factor against your approval for a credit card.
How do I choose the right secured card?
There are many factors that go into picking the right credit card for yourself. After my initial rejection for the Uber Visa Card, I realized that I’d need to start off with a secured credit card from one of the various card issuers out there, but I wasn’t sure where to begin. I still wanted a card that provided rewards, if possible, but most importantly, I had to be smart about my choices. I sat down to re-evaluate my priorities, based on the following: – Would I be carrying a balance on my secured card, or would I be paying in full? – If I chose to carry a balance, what is the highest interest I’d be willing to pay in order to increase my credit standing? – How important are rewards to me – would I be willing to compromise and subject myself to a higher APR in order to enjoy miles, cash back, or anything else? Obviously, the answer to these questions are extremely subjective, and will depend on your budget, your goals, and your personal preference. I did some digging, and found four secured card offers that interested me:
University Credit Union Secured Mastercard
First,my credit journey took me to the University Credit Union Secured Mastercard, from the University Credit Union (UCU). I chose this card because I actually used to bank with University Credit Union (I opened an account when I attended university), and I’d had a good experience with their customer service – but also because an APR of 9% is the lowest interest rate I could find for a secured card. Couple that with no annual fee to use it, and it sounds like a dream come true – the only caveat is that the UCU Secured Mastercard does not have any rewards associated with its use, so it’s an extremely basic card, best for someone whose primary goal is to save as much money as possible while they establish or improve their credit. I also liked that, if I decided to hold a balance, this card offers the most competitive interest rates currently on the market for secured credit cards. A minimum deposit of $500 is required to qualify for this secured card, which means that your spending limit will be at least $500, depending on how much money you use as your deposit.
BB&T Spectrum Cash Rewards Secured Credit Card
While the first card I checked out was very enticing thanks to its low APR, I was still hungry for some sort of dining rewards. I knew that there were offers out there that would allow me to build my credit and earn some sort of incentive while doing so, but I wasn’t sure where to begin. As I continued my search, the BB&T Spectrum Cash Rewards Secured Credit Card caught my eye thanks to a generous cash back rewards program. With this card, you’ll earn 3% cash back on gasoline purchases, 2% back on groceries and utilities, and 1% back on all other purchases; I commute for work, and buy groceries every week, so this stood out for me as an excellent choice over-all, even though it does charge an annual fee of $19. While this is certainly more than $0, it’s a very reasonable annual fee to pay in order to build credit and earn cash back simultaneously. Remember, most secured credit card offers don’t couple in a rewards program, so finding a card as generous as this offering from BB&T may be difficult. Note: BB&T also offers a travel rewards secured credit card, but with an annual fee of $89, I decided I’d rather earn cash back now, and apply for a travel rewards card once my credit score improves. Again, the cash-back offer for gas and groceries is what made the Spectrum Cash Rewards secured card most attractive to me, since I originally wanted to find a card that would reward me for my food obsession. Unlike the University Credit Union Secured Mastercard, there is my credit journey no specific amount required as a deposit for the BB&T Spectrum Cash Rewards Secured card. Approval and credit limit is determined based on your debt to income ratio, as well as credit or account history (for those of us who already bank with BB&T). The amount you are approved for is the amount that will be required as the collateral deposit. The Spectrum Cash Rewards Secured card has an APR of 21.49% for purchases and balance transfers, which is significantly higher than the secured card mentioned above from UCU. While that may make it less attractive, it’s actually a very competitive interest rate for a secured card, and is lower than the APR for each of the next cards I looked at, so this came as my second choice thanks to its rewards program coupled with its competitive APR.
Discover it® Secured Card
I continued my credit journey search for a secured card that offers rewards in the dining category, and stumbled across a great offering from Discover: the Discover it® Secured Card. This secured card weighs in with 2% cash back on purchases made at restaurants and at gas stations, and 1% cash back on all other purchases, for combined spending up to $1,000 each quarter. At the end of your first year of using this secured card offer, you’ll discover that Discover will automatically match all cash back earned, effectively doubling your cash rewards – definitely an enticing offer for those of us who love to save money. There is no annual fee to eat into your savings, either. Out of the four cards I my credit journey selected to look at, however, this card had the highest interest rates: 25.24% for purchases and balance transfers. All in all, this is a great offer that I can certainly use to my advantage while I improve my credit score, but I was still curious and wanted more information before making my final decision. I decided to continue exploring my secured card options. The minimum deposit required to qualify for this secured card is $200.
Aeromexico Visa Secured Card
Next in my credit journey, I looked at a secured card with travel rewards. Granted, my focus with my search was for cards that offer dining rewards, but earning miles towards travel is always appreciated. My girlfriend and I have been tossing around the idea of taking a trip to Mexico City, which is famous for many things, including its food scene; our goal is to taste the city and experience its culture, while on a budget. Even though the peso is not as strong as the dollar, between flights, hotels, food, and transportation while visiting, this could still turn into a costly trip – so I decided to see if I could find a secured credit card that offers rewards miles for spending. Enter the Aeromexico Visa Secured Card; since Mexico is our goal, and Aeromexico is the flag carrier airline for Mexico (and they have a hub in the city I live in), this card is a strmy credit journeyong choice for travel rewards to get me to Mexico on a budget. For every dollar spent with this Visa card, I’d earn double miles for gas and groceries – two things I regularly spend money on – and to sweeten the deal, this card offers 3500 bonus miles and a complimentary companion certificate after the first time you make a purchase with it. Hang on. I know what you’re thinking: I can earn 3500 bonus miles AND a complimentary companion ticket, just for using my card for the first time?! This means that just for using this card, when my girlfriend and I purchase flights to Mexico City, one of us will fly for free – and I’d earn bonus miles that can be redeemed as a discounted ticket or combined with other miles to be redeemed as a free ticket for one of us?! While this sounds almost too good to be true, it’s a very real offer – and for someone who likes to travel, such as myself, it’s difficult to pass up on, especially since I can earn double miles for all grocery purchases. In addition to double miles for gas and groceries, the Aeromexico Visa Secured Card rewards spending in all other categories at a rate of 1 mile per $1 spent. There is a nominal $25 annual fee, which is easily offset just by the companion ticket and 3500-mile bonus. A minimum deposit of $300 is required, and while this card’s interest rate is slightly higher than the first two cards we’ve discussed, at 24.99% it’s not entirely unreasonable, considering the rewards you can earn by using it.
What’s Next in My Credit Journey?
Out of the four secured credit cards I looked at, this last offer was the strongest candidate for my personal goals and preferences. It ticks all the boxes – rewards for spending on gas and groceries, two categories where I know I can earn a lot of miles – it will make my upcoming food odyssey to Mexico City much easier to achieve (and cheaper), and the Aeromexico Visa Secured Card won’t break the bank with overly high annual fees, which is certainly valuable considering the rewards-earning power at my fingertips with this secured card. All that was left was to apply for it. The Aeromexico Visa Secured Card is a strong candidate for anyone who has hard a hard time with their credit history, or who needs to build credit, but still enjoys travel. Granted, it may not be the best fit for every budget or taste, but for a secured credit card that offers rewards, there is little to complain about. It’s important to take your time and do your due diligence when it comes to applying for cards like this, because not all cards are created equal – but in the pursuit of credit (and dining rewards), anything can happen. The next time you hear from me, I’ll be regaling you with stories of secured credit card applications in my my credit journey, advice for how to best use a secured credit card that offers rewards, and (if all goes well) tales of authentic and delicious tacos.