Making the Most of the Capital One Secured Card

Secured credit cards are one of the most effective tools available to people rebuilding their credit. The Capital One® Secured MasterCard® has all the qualities of the best secured cards, such as an annual fee of $0 and a promise to report all activity to the credit bureaus. That means careful use of this card will result in an improved credit score.

But the Capital One® Secured MasterCard® has one feature that sets it apart from other secured credit cards. Here’s how you can use it to your best advantage.

» MORE: NerdWallet’s best secured credit cards

Potential for a smaller security deposit

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Secured credit cards, by definition, require cardholders to put down a refundable security deposit. Almost always, the security deposit is equal to your credit line. If you put down $500, you have a $500 credit line.

The Capital One® Secured MasterCard® is different. The starting credit line is $200, and some applicants will be asked to put down $200 as collateral. But others may be approved for a $200 credit line with a smaller deposit — either $49 or $99.

If you want a credit limit higher than $200, you can elect to put down a larger deposit before you activate your card. The highest possible credit line for this card is $3,000. But the potential to tie up less money in a security deposit is what makes this card unusual.

Capital One also lets you pay your deposit in installments of $20 or more, rather than all at once. As long as you have the full amount deposited within 80 days of approval, you’re good to go.

» MORE: Read our full review of the Capital One® Secured MasterCard®

How a lower deposit can help you

1. You don’t have to wait as long to get on the road to credit recovery. It can take a while to save up enough money to put down a deposit for a secured credit card. Many cards have a higher minimum deposit than the Capital One® Secured MasterCard®. For example, the Wells Fargo Secured Visa Card has a minimum deposit of $300. The Capital One® Secured MasterCard®’s potential for a lower deposit will get you going faster.
2. You can keep more of your cash in the bank. If you’re working on rebuilding credit, chances are you’re recovering from other financial challenges as well. It can be a strain to send all your liquid savings to a credit card company to hold as collateral.
3. You may not have to close the account immediately. Ideally, your credit will soon improve enough that you can apply for an unsecured credit card. But the longevity of your accounts is part of what makes up your score, so closing out your secured card when you open an unsecured one could be detrimental. With the Capital One® Secured MasterCard®’s low deposit and annual fee of $0, it won’t tie up much of your money if you opt to keep the account open for a little while until your unsecured account isn’t brand-new anymore.

» MORE: How to build credit

Other ways to rock the Capital One® Secured MasterCard®

Aside from the possibility of a lower deposit, the Capital One® Secured MasterCard® is a no-frills card. As with most secured cards, there are no rewards, and the interest rate is steep. But you can still use it strategically to get the most out of it.

• Don’t carry a balance. Carrying a balance boosts your credit utilization — the amount of your credit line you’re using — which acts as a drag on your credit score. Also, the Capital One® Secured MasterCard®’s APR is high even by secured card standards. The ongoing APR is 24.99% (Variable).
• Use it regularly, and pay on time. Once you have the card, using it regularly to make small purchases and paying them off in full before the due date is the recipe for raising your score quickly.
• Take a trip! The Capital One® Secured MasterCard® has no foreign transaction fees, so if an overseas vacation is on the horizon, you’ll be glad to have this card.

Moving past the Capital One® Secured MasterCard®

There’s no hard-and-fast rule about how long you’ll need to keep a secured credit card before you’re ready to move on. But once your credit score climbs above 630, you can start to look for a credit card for people with fair credit. These cards don’t require a deposit, and many will have rewards, balance transfer offers and other benefits.

In the meantime, the Capital One® Secured MasterCard® can be a potent weapon in your fight against bad credit.

Virginia C. McGuire is a staff writer at NerdWallet, a personal finance website. Email: virginia@nerdwallet.com. Twitter: @vcmcguire.