One of the hardest times to get a credit card is when you have bad credit or no credit at all. The problem is that you often need a credit card to start building a good credit history, but you also need a good credit history to be approved for many credit cards.
If you cannot be approved for a traditional credit card, a secured credit card is an alternative worth considering. Learn how secure credit cards work and if one is right for you.
What is a Secured Credit Card in USA?
Secured credit cards in USA cards require a deposit, which serves as security for purchases made with the card. If you default on your payments, the card issuer will keep your deposit. Otherwise, as long as you keep your account in good standing, your credit card issuer will refund your deposit after a certain number of months or upon the closure of your account.
The credit limit on your secured credit card is usually equal to your security deposit. In some cases, your credit limit may be higher than your deposit, depending on the card you choose and your credit history.
How Does a Secured Credit Card Work in USA?
You can use a secured credit card like any other credit card. Swipe it up to your credit limit for purchases and make timely payments on your balance every month. The application process is also the same as for a conventional credit card. Card issuers check your credit history. If approved, pay your deposit.
Secured credit cards in USA cards can be a good option for building or rebuilding your credit. Five advantages are emerging for consumers with credit problems or no credit at all. You can often get a secured credit card approved when you can't get approved for a traditional credit card. Paying the deposit takes the credit risk off the credit card issuer.
They usually report it to the credit bureaus. Unlike a prepaid credit card, which works more like a debit card, a secured credit card sends your account history to credit bureaus for inclusion in your credit report.
Secured credit cards in the USA can help you build or restore your balance. Because payments are listed on your credit report, making payments on time and managing your balance will help improve your credit score. After upgrading your credit score, you may qualify for a regular credit card. Your deposit will only be used if you default on your payment.
Unless your default balance is higher than your deposit, you will not be forwarded to a collection due to non-payment. Although the card issuer will keep your security deposit, you don't have to worry about card payment collection companies coming after you.
However, late payments will affect your credit score. You can earn rewards for purchases made with some cards, e.g. B.with secured cards from Discover and Navy Federal.
While secured credit cards can be attractive to those trying to improve their credit score, they do have some downsides. It can be difficult to raise even a few hundred dollars for a deposit. If you have this money, you could spend it better by paying off some outstanding debt.
In addition to the deposit, fees may apply.
Depending on the card you choose, you may be required to pay an application fee, processing fee, or annual fee to secure your credit card.
This increases the cost of owning the card. Shop around and choose the card with the lowest interest rate. You may have to pay a higher interest rate. Secured credit cards typically do not offer competitive interest rates due to the risk of default.
To avoid high financing costs, pay the full amount each month.
Frequently Asked Questions (FAQs)
Which banks offer secured credit cards in USA?
Many banks and credit card companies offer secured credit cards. Consider asking your preferred bank if they offer a secured credit card. However, don't apply for a card without first reading the terms and conditions. Examine the APR, fees, and whether you will be able to switch to an unsecured card in the long term.
What are the top-rated secured credit cards in the USA?
The Discover it Secured card, Capital One's Secured Mastercard and Merrick Bank's Secured Visa are all highly rated secured credit cards. Explore it Secured provides cashback incentives. Capital One's Secured Mastercard has a low deposit requirement. Merrick Bank's Secured Visa has a low-interest rate.
How do secured credit cards help you build credit?
Credit card companies report your payment history and credit utilisation to credit bureaus. You are going to have to pay on time and keeping your card balance low can help you boost your credit score. The key to building credit with a secured credit card is to use it prudently.
Anyone who has had a bad credit score is familiar with the following consequences:
- Difficulties obtaining loans
- Higher interest rates and less generous conditions on loans for which you do qualify.
- Having difficulty obtaining a security clearance from current or prospective employers?
- Having difficulty securing an apartment lease
- Increased auto and homeowners' insurance premiums (in certain states)
- Emotional consequences, such as strained personal relationships and a lower quality of life
The causes of bad credit are even more diverse
Personal bankruptcy, repossession, and other negative events can have a significant impact on your credit score
Neglect can do the same thing in a less dramatic way. Past-due loan payments, high credit activation functions, and excessive credit application patterns all contribute to a gradual deterioration of your credit score.
The lack of meaningful credit history is the root cause for many consumers. If you've never applied for a credit or debit card or cosigned a loan, your track record (or lack thereof) is unlikely to reassure prospective lenders, landlords, insurers, or business owners.
Secured Credit Cards in the USA: Get Your Foot in the Door.
Secured credit cards are intended for two kinds of customers:
• Those with little or no credit history—those seeking credit for the first time.
• Those with low credit scores due to negative credit events or benign neglect—those seeking to rebuild credit.
How to Qualify for a Secured Credit Card in USA
Secured credit cards have much softer lending criteria than most unsecured cards, particularly premium cash back and travel rewards credit cards, which have generous rewards programs, long lists of value-added perks, and massive spending limits.
Credit Cards with No Credit Checks
A few credit line cards do not require any kind of credit check. The Cleo Credit Builder Card is the best in our opinion. Its advantages include:
- Use your card as little as once per month to keep building credit.
- A small security deposit is required.
- Cash back on qualifying purchases
- Cash advances (terms apply)
- Bill payment on autopilot
- Keep track of your progress in your account.
Applicants who can scratch up the minimum required security deposit (more on that below) are guaranteed approval with no security deposit required. The catch is that no-credit-check secured cards typically have higher annual fees, higher APRs, more stringent terms, and no clear path to unsecured status.
My new supervisor closed the group orientation session at one of my first jobs, a low-wage call centre job, with a matter-of-fact prediction I'll never forget: "In three years, none of you will be here."
Sure, the remark was foreboding, but it was also refreshingly realistic. He said, "You shouldn't want to work at an entry-level job paying just above the minimum wage for any longer than you have to." We'll help you move up, or we'll help you move out. "
Secured credit cards, like entry-level jobs, are a means to an end. They are essential for credit-building consumers who are unable to qualify for unsecured credit cards.
When used responsibly, they can serve as a bridge to credit cards with better rates and terms, as well as home loans and other important types of credit, just as menial, low-wage jobs can help hardworking young people advance to more meaningful work.
Secured credit cards in USA, like the jobs that most of us began, aren't built for the long haul. Why aim to keep the same secured credit card for five years when you can gradually but steadily improve your credit through responsible use and graduate to an unsecured alternative in 12 or 24 months?