Bad credit and American Express cards are two things that usually do not go hand in hand. That’s why I had to blink twice when I saw that the USAA secured card application was available in an AmEx version.
But before you get excited, there are some important things you need to understand…
1: This card is not managed by AmEx
American Express has two parts to its business:
- Card Issuer: This consists of issuing and managing cards. If you have a card issued by AmEx, then you will be dealing with AmEx customer service, logging in on their website, etc.
- Payment network: The second (and lesser known) part of their business is acting as a payment network. This is what Visa and MasterCard do – instead of issuing cards, they just process transactions over their networks.
When most people think of AmEx, they’re typically thinking of a card that falls under both categories. For example the Green, Gold, Platinum, Blue, etc. are all issued by AmEx and processed over their payment network.
The USAA secured credit card doesn’t work this way. It only uses AmEx as a payment network. Aside from that, the card for the most part has nothing to do with AmEx. When you call up customer service, mail in your bill, or login to your account, you’re doing all those things thru USAA.
2. You’ll be locked into a CD
With most secured cards, you can close your account and have your money refunded at anytime without penalty. The USAA secured American Express card operates a bit differently – your deposit will be a CD with a 2-year term.
Even though this may sound nasty, it’s actually not that bad. The interest rates paid on deposit accounts are so low right now, the penalty for early withdrawal is really just splitting hairs:
Yes, a penalty of a 180 days worth of your interest may appear harsh, but when the yield is barely 1% anyway, you’re probably only talking a matter of pennies for the penalty.
For example, if you opened it with the minimum security deposit of $250 and closed the account after 1 year, you would be docked a half-year of interest. Given the 1.1% yield, you will have only earned about $2.75 of interest for the entire year. So that means your penalty would be half that… $1.38.
Conclusion? Since bank account yields are so low right now, the penalty for early withdrawal is really quite trivial in terms of the amount of money you actually lose.
You can’t raise your credit limit (update: now you can!)
Unfortunately only your upfront deposit will count towards your credit limit:
This is a stark contrast to the way that most other secured cards work – they typically let you add more money at any time to increase your credit limit. However with the secured USAA American Express you can’t do that… so don’t open it until you have all the money saved up that you want for your credit limit.
Update for 2013: Great news! Previously you couldn’t raise your credit limit, but now you can!
Despite the drawbacks…
…it’s still an excellent choice for 2013. Its annual fee is a reasonable $35 and there are no application fees or any other hidden charges. It also has a surprisingly low interest rate. But then again if you’re trying to build or rebuild credit, I think it would be quite foolish for you to carry a high balance anyway!
Written or last updated in 2013