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A secured credit card can be a very useful tool for helping you establish good credit if it is used sensibly. However, it could be helpful to comprehend how secured cards operate before applying. To find out more about secured credit cards and their possible advantages, continue reading.
Key takeaways
- Usually, a cardholder must pay a one-time, refundable security deposit to open a secured credit card.
- Secured card credit limits vary by card. Depending on the issuer, the limit could be greater than or equal to the deposit.
- For those wishing to rebuild their credit scores or build a credit history, a secured credit card could be a good choice.
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Check out our Quicksilver and Platinum Secured cards to start establishing credit.
What is a secured credit card?
One kind of credit card that needs a security deposit to be opened is a secured credit card. Usually, the credit card issuer uses the cardholder’s one-time, refundable deposit as collateral.
If you’re attempting to establish, repair, or build credit, a secured credit card may be a great choice. Additionally, using credit cards responsibly can improve your eligibility for other credit cards, mortgages, and auto loans.
How does a secured credit card work?
Secured cards work exactly the same as regular credit cards when it comes to making payments.
However, the credit card issuer needs a security deposit from the cardholder in order to open a secured card account. Like a landlord holding an apartment’s security deposit, the issuer retains the deposit while the account is open.
What’s the difference between secured cards and unsecured cards?
The security deposit is the primary distinction between an unsecured and secured credit card. Opening an account with an unsecured credit card doesn’t require a deposit.
With secured cards, there may be restrictions on rewards like cash back or miles. But not in all cases. Take the Quicksilver Secured Rewards card, which offers cardholders 1. 5% cash back on every purchase.
Occasionally, the credit limits on secured cards match the amount of the security deposit. But that’s not always the case either. Capital One is able to provide secured credit cards with limits greater than the initial deposit, such as providing a $200 credit line with a $49 or $99 security deposit.
How to apply for a secured credit card
Depending on the credit card issuer, applying for a secured credit card may involve different steps. But here’s how applying for a secured card could work:
Get approved for a secured card
Studying up on credit card application procedures could be beneficial. You could also check whether you’re pre-approved for a card. It’s quick and secure—and checking won’t hurt your credit score.
Acceptance for a secured credit card isn’t assured, just like it isn’t for any credit card. Each credit card issuer has its own policies and qualifications. Depending on creditworthiness, there can be additional requirements in addition to a security deposit. Make careful to consider the card’s annual percentage rate (APR) and any hidden costs before applying.
Find a card that fits your needs
Looking through card offers is quick and simple when you’re pre-approved, and it doesn’t affect your credit score.
Make your deposit
Deposit requirements can vary. Certain card issuers let you spread out the cost of your deposit over time. Others may require an upfront deposit.
Deposit amounts can vary too. Sometimes, the deposit and your credit line may be the same. A $200 deposit, for instance, could result in a $200 credit limit.
However, some credit cards may offer a credit limit greater than the security deposit, such as the Capital One Platinum Secured card. Depending on your credit history, Platinum Secured allows you to open an account with a $200 credit limit with an initial security deposit of $49, $99, or $200. By making larger deposits than the required amount, Platinum Secured cardholders can also increase their credit limit.
Start using your secured card
Like with an ordinary, unsecured credit card, you can use a secured credit card to make purchases both offline and online after being approved for one and making your deposit. Many secured cards look like typical credit cards. The likelihood is that only you will be aware that you are using a secured card.
It’s crucial to use your credit card sensibly if you want to establish credit. That means doing things like making on-time payments every month.
Potential benefits of secured credit cards
There are plenty of advantages to using secured credit cards. A secured card could help you:
- Gain experience using a credit card
- Having a credit line available for use when needed
- By using responsibly, such as paying your bills on time each month, you can improve your credit.
- Strive to be eligible for a credit card with a greater credit limit or better rewards.
Tips for using a secured credit card to build credit
Credit-building advice for secured card users is comparable to that for regular credit card users. Here are some strategies to help position yourself for success:
- Recognize your deposit: Verify that you can pay back your deposit in full within the time frame the card issuer has specified. You run the risk of having your account closed by the lender if you don’t fund the deposit on time.
- Keep an eye on your purchases and statement amounts. If you go over your credit limit, your credit card may be refused. Furthermore, you might wind up owing more than your initial deposit if you’re paying interest. However, you can reduce the amount of interest and late fees you pay by paying your statement balance in full and on time each month.
- Make use of a budget: It might be simpler to stick to your limit if you only make a few fixed purchases with the card each month. And it might facilitate your acclimation to credit card use.
- Select a credit card issuer who reports your credit activity because secured credit card accounts may not be reported by all credit card issuers. Make sure your secured card issuer reports to at least one of the three major credit bureaus, Experian®, Equifax®, or TransUnion®, if your goal is to improve your credit through responsible use of the card. Notably, Capital One submits reports to each of the three bureaus.
For more advice, see this guide on using a secured credit card to establish credit.
Secured credit card FAQs
These frequently asked questions can help you learn more about secured credit cards:
If I have a secured credit card, can I get my deposit back?
The deposit on a secured credit card is usually refundable. However, card issuers have their own guidelines regarding the timing and methods of refunds.
There are two ways you can get your security deposit back if you have a Capital One card. If you use your card sensibly, you can receive a statement credit back for your deposit. Alternatively, if you close your account and settle the balance in full, Capital One might return your deposit.
I have a secured credit card; is it possible to convert it to a regular credit card?
It’s possible to switch from a secured to a regular credit card with certain credit card issuers without having to cancel your initial credit line. They may even return your deposit.
If you decide to switch to a traditional credit card, speak with your credit card issuer to find out what’s feasible and how your account will be handled. For instance, find out if the closing of your initial account is planned. If so, make sure you comprehend the potential effects on your credit of canceling a secured credit card.
What distinguishes debit, prepaid, and secured cards from one another?
Secured credit cards are credit lines that are provided to the cardholder by a lender and are opened with a one-time, refundable security deposit. Prepaid cards are pre-funded by loading money onto the card. And debit cards are usually connected to a checking account.
Prepaid and debit cards might not help you establish credit, in contrast to secured credit cards. This is because, according to the Consumer Financial Protection Bureau, activity on those accounts is typically not reported to credit bureaus. Many of the security features found on credit or debit cards may not be present on prepaid cards.
Learn more about the differences between secured and prepaid cards.
Secured credit cards in a nutshell
One sort of credit card that requires an initial deposit to be opened is a secured credit card. These cards can be useful resources for those trying to build or repair their credit.
A secured credit card could be the best option if you’ve never had a credit card before or if you want to raise your credit score. Building good credit takes time. However, with responsible use, secured credit cards like Platinum Secured or Quicksilver Secured could help you improve your credit and prepare for a better financial future.
FAQ
Is it a good idea to have a secured credit card?
You can increase your credit score and become eligible for a regular “unsecured” credit card by using a secured credit card responsibly. You can apply with a different issuer or you might be able to upgrade your secured card to an unsecured one from the same provider.
How does a $200 secured credit card work?
A $200 credit limit will be granted to you upon payment of a $200 security deposit. You will have to make larger deposits if you would like a higher credit limit. Additionally, the amount you deposit is fully refundable in the event that you either upgrade to an unsecured card or pay off your balance in full before closing your account.
Is it better to use a secured or unsecured credit card?
Better benefits and rewards, cheaper fees, and lower interest rates are typically associated with unsecured credit cards. While unsecured credit cards are typically reserved for those with good credit or better, secured credit cards are typically for those with bad credit or no credit history.
What is the $500 limit on a secured credit card?
This implies that your secured credit card will have a minimum $500 credit limit if your initial deposit is $500. Your refundable security deposit will be placed on hold by the financial institution supporting your secured card account, meaning you won’t be able to use those funds.
Read More :
https://bettermoneyhabits.bankofamerica.com/en/credit/build-credit-with-a-secured-credit-card
https://www.capitalone.com/learn-grow/money-management/how-secured-credit-cards-work/