There are certainly a number of positive attributes involving USAA. It is a common misconception that they are a credit union since they require membership and offer below-average interest rates on loans and credit cards. And for those with bad credit, their secured credit card offers several advantages:
- Reasonable cost: With an annual fee of $35 per year, this is certainly a lot cheaper than what many other banks and card issuers charge for those with impaired credit. For example, First Premier Bank charges upwards of $100 or more per year just to get a card with a credit limit as low as $300…. pretty pathetic.
- Low foreign transaction fees: For active military who are deployed overseas, this benefit definitely comes in handy- the surcharge for purchases outside the US is only 1%. Most card issuers will tack on 2-3% for that.
- Low APR: As with any credit card, as long as you pay your USAA secured account in full each month, you don’t have to worry about interest charges. But if you carry a balance, the APR is quite a bit below average at 9.9%.
- MasterCard or AmEx: You can choose a USAA Secured MasterCard or American Express. But don’t be confused, as AmEx is not the issuer of the card. As discussed here, they are nothing more than a payment network that has contracted with USAA, just like MasterCard.
- Earns Interest:Very few secured credit cards pay interest on the security deposit, but USAA does. The bad news? Interest rates are so low that it’s hardly anything to be excited about, but something is better than nothing. Below is the published rate on the application:
Run that numbers and that means on a $1,000 security deposit, you’re only earning $11 of interest in one year. Obviously it’s better than nothing, but given the ultra low CD rates right now, I wouldn’t let this be a maker or breaker (unless your deposit is a few thousand bucks).
- Free “CreditCheck Monitoring” for 6 months: Before you get excited, let me explain how this works.
1. USAA is using ConsumerInfo.com (which is owned by Experian) to offer the monitoring.
2. Only information on Experian is monitored. Equifax and TransUnion are not included.
3. You’re not getting a FICO score. Instead you’re getting an Experian PLUS Score, which you can read about here. It’s a score that is different than FICO and it’s not used by lenders. Rather, it’s for “educational purposes” only. Therefore this benefit is nothing special considering that there are many websites out there which offer FAKO’s (FICO simulators).
And what’s the hidden trap?
A quick review of the benefits and there’s no denying USAA’s secured card has a lot going for it. However there is something very important that you need to know about before you apply for it…
You can never raise your credit limit!
With most secured credit cards, you can add more money whenever you want to increase your credit limit. But with the USAA secured credit cards you do not have that option. Even if you add more money in the future, your limit will be the same as whatever your initial deposit was. That’s not a customer-friendly policy. So, definitely consider this just a starter card to build your credit if you’re active or retired military (or have a family member that is).
Having decent credit limits is important for your score. If you’re trying to build or rebuild your credit, it helps to have a respectable credit line on your card. Ideally that means in the 4-figures, not 3’s.
With a USAA secured credit card the minimum deposit is only $250. If you plan to apply it would be best to wait until you can scrape together a bigger deposit because whatever amount you start with will end up being your credit limit for the life of your account. Don’t get trapped with a super low limit.
If you don’t have much money to begin with, then I would recommend you start with something different. Why? Because most other secured cards will allow you to add to your deposit at any time in order to increase your limit. Here is my favorite low-cost secured card that does that.
Last edited on August 20, 2014