Secured Credit Card
Lower interest rates
More flexible repayment options
Available to non-salaried
A secured credit card is a financial tool designed for individuals who may have difficulty obtaining traditional credit cards due to a poor credit history or limited credit experience. Unlike regular credit cards, where the credit limit is based on the cardholder’s creditworthiness, a secured credit card requires the cardholder to make a cash deposit, which serves as collateral for the credit limit.
Collateralized by Cash Deposit: A secured credit card requires a cash deposit from the cardholder, acting as collateral in case of payment default.
Functionality Similar to Unsecured Cards: Apart from the deposit requirement, secured credit cards operate like standard credit cards, allowing purchases, balance transfers, and cash advances.
Credit Building Purpose: Consumers often opt for secured credit cards to boost their credit scores or establish a credit history, especially if they have poor or limited credit histories.
Lower Credit Limits: Secured credit cards typically offer lower credit limits compared to unsecured cards. The credit limit is often determined by the deposited amount.
More Fees: Secured credit cards commonly come with higher fees than unsecured cards, including annual fees, application fees, and potentially higher interest rates. These fees can vary among card issuers.
Enquiry Form
How it typically works
Cash Deposit: When applying for a secured credit card, the cardholder is required to deposit a certain amount of money with the card issuer. This deposit is usually equal to the desired credit limit or a percentage of it. For instance, if the cardholder wants a $500 credit limit, they may need to deposit $500 with the card issuer.
Credit Limit: The amount deposited becomes the cardholder’s credit limit. This means they can only spend up to the deposited amount. For example, if $500 is deposited, the cardholder can spend up to $500 using the secured credit card.
Collateral: The deposit serves as security for the card issuer. If the cardholder fails to make payments on the card, the issuer can use the deposit to cover the outstanding balance.
Credit Building: Secured credit cards are often used by individuals looking to build or rebuild their credit history. Since the card activity is reported to credit bureaus just like regular credit cards, responsible use—such as making on-time payments and keeping balances low—can help improve the cardholder’s credit score over time.
Subprime Borrowers: Secured credit cards are commonly offered to subprime borrowers, who may have poor credit scores or limited credit histories. By providing a deposit as collateral, these individuals can demonstrate their ability to manage credit responsibly and improve their creditworthiness over time.
Fees and Interest: It’s important to note that secured credit cards may come with fees and relatively high-interest rates compared to traditional credit cards. These fees and rates can vary depending on the card issuer and the specific terms of the card agreement.
How to Apply for a Secured Credit Card
Research: Start by researching different secured credit card options available from various banks and financial institutions. Consider factors such as fees, interest rates, credit reporting policies, and any additional features or benefits offered.
Choose a Card: Once you’ve identified a few secured credit cards that meet your criteria, compare them to determine which one best fits your needs and financial situation.
Check Eligibility: Review the eligibility requirements for the selected secured credit card. While secured credit cards are generally easier to qualify for than unsecured cards, you’ll still need to meet certain criteria, such as minimum age, residency status, and the ability to provide a cash deposit.
Gather Necessary Documents: Before starting the application process, gather the required documents, which may include identification (such as a driver’s license or passport), proof of income, and details about your bank account for the deposit.
Fill Out the Application: Visit the website of the bank or financial institution offering the secured credit card you’ve chosen. Look for the “Apply Now” or “Apply Online” button and click on it to access the application form. Complete all the required fields accurately and honestly.
Provide Deposit Information: During the application process, you’ll be asked to provide information about the cash deposit you intend to use as collateral for the secured credit card. This typically includes the amount of the deposit and the source of funds.
Submit Application: Once you’ve filled out the application form and provided all necessary information, review the details carefully to ensure accuracy. After confirming everything is correct, submit your application.
Wait for Approval: After submitting your application, the bank or financial institution will review it to determine your eligibility for the secured credit card. This process may take anywhere from a few days to a few weeks, depending on the issuer’s procedures.
Fund the Deposit: If your application is approved, you’ll need to fund the cash deposit as specified by the card issuer. This typically involves transferring funds from your bank account to the secured credit card account.
Receive Your Card: Once the cash deposit is received and processed, the bank or financial institution will issue your secured credit card. You’ll usually receive the card by mail within a few business days to a couple of weeks.
Activate Your Card: Upon receiving your secured credit card, follow the issuer’s instructions to activate it. This may involve calling a phone number or activating it online.
Start Using Your Card: Once activated, you can begin using your secured credit card to make purchases, build your credit history, and enjoy any benefits or features offered by the card issuer.
Eligible for a Secured Credit Card
Minimum Age: You must be at least 18 years old to apply for a secured credit card. Some issuers may require applicants to be older, such as 21 years old.
Proof of Identity: You’ll need to provide a valid form of identification, such as a driver’s license, passport, or state-issued ID card.
Proof of Income: While secured credit cards don’t typically have strict income requirements, you may still need to provide proof of income to demonstrate your ability to repay the credit card balance. This can include pay stubs, bank statements, or tax returns.
Cash Deposit: Since secured credit cards require a cash deposit as collateral, you’ll need to have funds available to make the deposit. The amount of the deposit usually determines your credit limit.
Credit History: While secured credit cards are often targeted towards individuals with limited or poor credit histories, some issuers may still check your credit report as part of the application process. However, having bad credit or no credit history usually doesn’t disqualify you from getting a secured credit card.
Residency Status: You typically need to be a resident of the country where the secured credit card is offered.
Ability to Make Payments: The issuer will want to ensure that you have the financial means to make payments on the secured credit card. This may involve assessing your debt-to-income ratio or other factors related to your financial stability.
Not Currently Bankrupt: If you are currently going through bankruptcy proceedings or have recently filed for bankruptcy, you may not be eligible for a secured credit card until your financial situation improves.
Frequently Asked Questions
A secured credit card is a type of credit card that requires a cash deposit as collateral. The deposit serves as security for the card issuer in case the cardholder defaults on payments.
The cardholder makes a cash deposit with the card issuer, typically equal to the desired credit limit. The deposit determines the credit limit on the card. The cardholder then uses the secured credit card for purchases and payments just like a regular credit card. If the cardholder fails to make payments, the issuer can use the deposit to cover the outstanding balance.
Secured credit cards are often recommended for individuals with poor or limited credit histories who may have difficulty qualifying for traditional unsecured credit cards. They can also be beneficial for those looking to rebuild or establish credit.
Responsible use of a secured credit card, such as making on-time payments and keeping balances low, can help improve credit scores over time. The card issuer typically reports card activity to major credit bureaus, allowing positive payment history to be reflected in the cardholder’s credit report.
In most cases, the deposit is refundable. If the cardholder manages the secured credit card responsibly and closes the account in good standing, the issuer will typically refund the deposit, minus any outstanding balance or fees.
Yes, secured credit cards often come with fees, including annual fees, application fees, and potentially higher interest rates compared to unsecured cards. It’s essential to review the terms and conditions of the card agreement to understand the fees associated with a specific secured credit card.
The deposit amount required for a secured credit card varies depending on the card issuer and the desired credit limit. Some issuers may require a minimum deposit amount, while others may allow the cardholder to choose the deposit amount within a certain range.
Some card issuers offer the option to transition from a secured credit card to an unsecured credit card after a period of responsible card use. This typically involves demonstrating improved creditworthiness and meeting certain eligibility criteria set by the issuer.
Building credit with a secured credit card is a gradual process that can take several months to a few years, depending on individual credit history and behavior. Consistent, responsible use of the card, such as making timely payments and keeping credit utilization low, is key to improving credit scores over time.
Yes, it’s possible to have multiple secured credit cards, as long as the cardholder can manage them responsibly. Having multiple secured credit cards can potentially help diversify credit usage and improve credit scores, but it’s essential to avoid overextending credit and accumulating debt beyond what can be comfortably managed.
