Building credit when you’re starting from zero can be difficult. One way to build credit is by opening up a secured card. Secured cards are an introduction into the world of credit. You deposit a certain amount of money to establish your credit limit. Then, you pay off your balance in full every month to establish a good credit history and avoid late fees.
If you prove you can use a secured card responsibly, you will likely be offered a traditional credit card.
Today we’ll review Bank of America’s secured credit card. Bank of America is not the only financial institution that offers secured credit cards. In fact, you may find better terms elsewhere. Check out our full review for more details:
BankAmericard® Secured Credit Card Details
To open a BankAmericard® Secured Credit Card, you have to make a minimum deposit of $300. The maximum you can deposit is $4,900. BankAmericard® Secured Credit Card users do not earn interest on their deposits. For this reason, it may make sense to make a smaller deposit to open your secured card and store any extra funds you have in a savings account where you can earn interest.
Determining your credit limit
Your credit limit is determined by your security deposit, your income, and your ability to repay. Some users will only be able to spend as much as they originally deposited to open the card. However, if you prove that you have the income to repay, you may have a larger line of credit extended to you, making the card only partially secured. For example, if you deposit $300, but Bank of America looks at your income and decides you’re able to pay $700 back, your line of credit would exceed your deposit by $400.
Building your credit
Once you’ve had the card for 12 months, Bank of America will re-evaluate your credit history and ability to repay. If both of these things are trending to the positive, they may return your deposit, making the card fully unsecured. This is an ideal situation for those trying to establish or rebuild their credit.
Because Bank of America does report their secured card customers to each of the three credit bureaus monthly, you are likely to see an uptick in your score if you’re using the card responsibly. This increases the likelihood that you’ll get your deposit back at the end of the 12-month period.
Interest rates and fees
The BankAmericard® Secured Credit Card is not without fees. In fact, its fees are probably the least attractive thing about it:
(Terms are current as of April 2, 2018)
- $39 annual fee
- 21.74% variable APR on transactions, balance transfers, direct deposit, and check cash advances
- Fee of $10 or 3% — whichever is more — on all balance transfers and direct deposit or check cash advances
- 26.49% variable APR on bank cash advances
- Fee of $10 or 5% — whichever is more — on all ATM, over-the-counter, same-day online, or cash-equivalent cash advances
- Foreign Transaction Fee: 3% of the U.S. dollar amount of each transaction (1) made in a foreign currency, or (2) made in U.S. dollars if the transaction is made or processed outside of the United States. This fee will be in addition to any other applicable fee.
- Maximum late payment penalty fee of $38
- Maximum returned payment penalty fee of up to $27
In addition to these fees, you have an option to set up overdraft protection with your secured card if you have a Bank of America checking account. If the card is used for overdraft protection, you will be charged a $12 fee each time. While this is better than the typical $35 overdraft fee, it’s still not ideal. Many financial institutions offer free overdraft protection when you are linked to a savings account; however, Bank of America charges $12 every time, whether you’re linked to your savings account or your secured card.
Safety and benefits of the BankAmericard® Secured Card:
The BankAmericard® Secured Credit Card does come with some security benefits. For one, you have $0 liability protection. This means that if anyone uses your card fraudulently, you won’t have to pay a dime as long as you report it and provide any requested information to Bank of America.
It also comes with chip technology and ShopSafe. ShopSafe is a program that generates a temporary card number for use when shopping online. It links directly to your card, but protects you from having your real card number stolen.
Another benefit is signing up for email and text alerts. These can either provide you with the information you want at the drop of a hat or remind you when your bill is due so you don’t rack up those nasty interest charges and late fees.
What You Need to Get Approved for a BankAmericard® Secured Card
To determine approval, Bank of America looks at several factors, including:
- Your ability to pay the security deposit
- Your ability to make monthly payments
- Information pulled from all three credit bureaus
- Past management of other Bank of America accounts for current members
Pros and Cons of the BankAmericard® Secured Card:
- Option for partially secured card for those with adequate income
- Status regularly reported to all three credit bureaus to help you build or rebuild your credit
- Potential to turn into an unsecured card after twelve months if used responsibly, removing the need for the hard credit pull that would be involved in opening a new card
- Annual fee of $39
- Interest rates are high — once you qualify for an unsecured card, it may be worth the hard pull and shopping around for lower rates
- Associated overdraft protection is not free
- Deposit does not earn interest
How the BankAmericard® Secured Card Stacks Up to the Competition
Bank of America is not the only financial institution that offers secured credit cards. In fact, you may find better terms elsewhere.
The USAA Secured Card Visa Platinum® card does offer interest on your deposit through a 2-year CD. Interest rates are variable, but currently sit at a variable 0.54% APY. The minimum deposit is $250, and the maximum is $5,000.
Interest rates charged to customers and associated fees are lower. There is a $35 annual fee, but no penalty APR or foreign transaction fees. Interest rates are between 11.40% and 21.40% variable APR, depending on your creditworthiness. All cash advances and balance transfers come with a fee, up to 3%, and the fee for a late charge is $35. The only place where this card is more expensive than the Bank of America option is returned payment fees is up to $35.
Another option is the Discover it® Secured Card - No Annual Fee,with a minimum deposit of $200 and a maximum of $2,500. This card earns you cash back rewards points on all your purchases as you build your credit. Depending on how much you spend, you could yield more in cash back rewards than the CD with USAA would yield you. It comes with a $0 annual fee, no penalty APR, and no foreign transaction fee. They also won’t charge you a late fee the first time you miss a payment. After that, you pay up to $37.
While it lacks many fees, interest rates are actually higher than the Bank of America option at 24.49% Variable APR on purchases and balance transfers. Balance transfers also incur a 3% fee. (Currently, there is an introductory offer for 10.99% for 6 months on balance transfers.) The APR for cash advances is 26.49% Variable. The fee for cash advances is either $10 or 5% of the amount of each cash advance — whichever is more.
Don’t Focus on Rewards
Maybe the fact that the BankAmericard® Secured Credit Card doesn’t offer you cash back is actually a positive. It won’t reward you for spending more money, and that’s a very good thing from a psychological perspective — especially if you are recovering from past credit follies.
We still like USAA’s interest-bearing CD option as it doesn’t incentivize additional spending, but does offer consumers a return on their deposit.
Your exclusive goal when using a secured card should be to rebuild your credit by using it and paying it off in full every month so you don’t incur interest or late charges. If rewards would entice you to do otherwise, sticking with Bank of America could be a smart move.