Need a Secured Credit Card? Go with the Pro.
Written: Oct 01 '00 (Updated Oct 07 '00)
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Product Rating:
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Pros: Fair and Reputable company with reasonable fees
Cons: Annual Membership fee, will not automatically convert into regular credit card
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| netKat's Full Review: Capital One Secured Visa |
Capital One is emerging as one of the top ten major credit card issuers (by outstandings) in the US. They have traditionally catered to those with less than stellar credit ratings and have really capitalized on this niche. They handle over 25 million accounts and are a Fortune 500 company. Most people in the industry think of secured cards when they think of Cap One, but this company also has a foothold on the unsecured credit card market as well.
• What is a Secured Card and Who Should Have One?
A secured credit card is when the cardmember must leave funds on deposit with the bank in order to be extended credit. Many times the amount of the credit line is equal to the amount on deposit. The deposit is used to pay off any "bad debt" (unpaid balances) by the cardholder.
Secured cards are kind of like a halfway house for people with less than good credit or no credit at all. Presumably, they will handle their accounts well and keep them in good standing, which will help to build positive credit. The interest rates will be higher than regular credit cards due to the higher risk the bank is taking. Even though they have a security deposit, the deposit will not cover the total loss if the customer maxes out the account and does not pay the balance.
The goal is to use the secured card to build up good credit and then move away from a secured card and into a traditional credit card. Once a good record of positive credit is established, the need for a secured card will be gone.
• What's Good About the Capital One Secured Card?
Several months ago, I recommended this card to my friend who has poor credit. Why? Because Cap One has an excellent reputation and experience in the secured card market. Additionally, the account does not require a deposit equal to the credit line, and she will have the capability to move into a regular credit card account with the company when she qualifies. She currently has three credit cards; all designed for people with poor credit histories. The Capital One credit card is her only secured card. Little did I know the horrible terms she was getting on her other cards. (See the "Aspire to Go Broke" link at the end of this review.)
• How About the Fees?
Many secured cards have outrageous fees, including application fees, annual fees, account opening fees, and processing fees. This card has only an annual "membership" fee which is $39.
If you make a late payment or go over your credit limit, there is a $25 fee. Additionally, if you bounce a check in payment of your account you will be assessed with another $25 returned check fee. Remember that all these fees, as well as your finance charges, can put you over your credit limit, so make sure you leave a margin of credit for any fees and/or finance charges you anticipate on your account.
Late Payments and going over the limit on your account will leave bad marks on your credit. The fees are the least of your worries. The goal is to establish good credit, so be extra careful on your account.
• The Terms
Secured cards are a bit tricky, in that they will approve you for the "best terms" they can offer based on your credit reports. So, you may apply for one rate, but be approved for another. My friend was approved for the advertised fixed rate of 19.8%. She received a standard Visa card with a $300 credit line. She has a 25-day grace period, so she can pay off her bill each month and not have to pay any finance charges at all. She had to make a $200 security deposit.
If she makes a late payment or goes over her credit limit, her APR can be raised. This is called Risk Pricing or Penalty Pricing and is pretty much an industry standard on all kinds of credit cards.
There is no promotional rate on this card.
Cap One will automatically review your account on a regular basis and raise the credit line if they feel it is warranted. Of course, you can also call in and request an increase as well. My friend has had her account for three months and has not been offered an increase.
There is also a possibility of calling in and getting the APR lowered after being a customer for a while, however, keep in mind the rate is high because of the higher risk being assumed by the bank.
• How is the Customer Service?
Cap One maintains a special customer service line specifically for secured cards. My friend has reported calling numerous times for a variety of reasons and being met with prompt and effective service. I called as well while researching for this review and also had an excellent experience. All of my questions were answered in a professional and helpful manner.
• Do you Earn Interest on your Security Deposit?
Yes. The interest rate is adjusted weekly based on the formula of .05% times the National Bank Rate as published in the Wall Street Journal on each Thursday. Your security deposit may not be withdrawn as long as you have the account, unless Cap One agrees to change your terms. Sometimes, with an excellent record, they will allow you to withdraw some or all of your security deposit.
• Are there any Benefits on the Card?
Nope. Unless my friend gets qualified for the Capital One Gold Card, she will not have benefits found on some other cards such as Travel Accident Insurance, Supplemental Auto Insurance, Purchase Protection Plan, etc.
This card is strictly for the convenience of having a credit card and establishing a positive credit record.
• How do you Convert the Secured Card to an Unsecured Card?
This is not so easy. Cap One will not automatically transform your secured account into a regular account. You actually have to reapply for a new account with new terms. They recommend that you keep their secure account in good standing with ontime payments for about a year before you inquire about an unsecured card.
• The Cap One Website
The main Capitol One website is comprehensive and very helpful. Especially nice is the contact page which gives every possible address and phone number. For consumers who may not be the most careful with their accounts, and may need to get a payment to the bank overnight or discuss their account immediately, this is fantastic.
• Is this Secured Card Worth It?
Well, yes and no, it depends on your goals and situation. If you cannot begin to establish credit through other means, you really want a credit card, and you have the self discipline to properly handle your account, I would say go for it. This is a fair and established company. No one need know it is a secured card but you.
But if, in taking an honest look at your spending habits, you realize that you will be going more in debt because you have the credit line available, I would say stay away from any kind of credit. You will only dig yourself into a deeper hole.
Take note that creditors look at all your credit relationships, not just the one you have with them, so you need to handle any and all accounts you have well. If you treat your credit card just like cash and only spend what you can afford, you'll be OK and on the way to establishing some positive credit. The Capital One Secured Credit Card is a reasonable route on your road to recovery. :)
- You may be interested in these related reviews: -
• Aspire to go Broke with Aspire Visa Gold Credit Card
http://creditexpert.epinions.com/finc-review-D0C-50D2E1C-39D3D5FE-prod1
• Establishing Credit: Tips from an Industry Insider
http://creditexpert.epinions.com/finc-review-69E0-6DFB00-38BEFECC-bd3
• YES, You CAN Repair your Credit: an Industry Insider Shows You How
http://creditexpert.epinions.com/finc-review-23B7-83662BE-38F10F1B-prod6
• Horror of Another Kind: Credit Card Fiascoes: How other people's mistakes can save YOU money!
http://creditexpert.epinions.com/finc-review-5BF7-C7714F5-38E88159-prod2
Recommended:
Yes
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Epinions.com ID:
netKat
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 - Top 200 |
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Member: Kat
Location: Maryland
Reviews written: 166
Trusted by: 887 members
About Me:
Analytically inclined mom, bank officer, freelance writer, and internet addict.
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