Understanding Secured Credit Cards: A Comprehensive Guide
At O1ne Mortgage, we prioritize consumer credit and finance education. Whether you’re new to credit or looking to rebuild your credit score, understanding secured credit cards can be a crucial step in your financial journey. This guide will walk you through everything you need to know about secured credit cards, from making a security deposit to transitioning to an unsecured card. For personalized mortgage services, call us at 213-732-3074.
What Is a Security Deposit for a Credit Card?
A security deposit for a credit card is a refundable amount that serves as collateral for a secured credit card. When you open a secured credit card account, you make this deposit, which the credit card issuer holds. The deposit is generally equal to your credit limit and is used only if you default on your credit card balance. It’s important to note that you cannot use the security deposit to pay your monthly credit card bill.
In most cases, your credit limit will be equal to your security deposit. For example, if you make a $200 security deposit, you will typically receive a $200 credit limit. Some card issuers may offer a credit limit higher than your security deposit, depending on their terms and conditions.
How to Make a Deposit on a Secured Credit Card
Making a security deposit is usually the final step in applying for a secured credit card. Here’s how the process works:
1. Fill out an application online: You will need to provide personal details such as your name, Social Security number, and monthly income.
2. Select your desired credit limit: Depending on the card, you can generally choose a credit limit between $200 and $2,000.
3. Make a security deposit: In addition to a deposit equal to your chosen credit limit, there may be additional fees such as processing or application fees. You can pay by debit or electronic funds transfer. Ensure you have enough money in your bank account to cover the payment.
4. Get approved: After making your security deposit, you will generally be approved right away. Some card issuers allow you to wait until you’re approved to make your security deposit. However, you must make the deposit within a certain time frame, or the approval will be withdrawn.
5. Start using your secured credit card: Once you receive your secured credit card in the mail and activate it, you can start using it like any other credit card.
When Do You Get Your Secured Credit Card Deposit Back?
You typically get your secured credit card deposit back when you pay your balance and close your account or when your secured credit card converts to an unsecured card. After demonstrating responsible use of your secured credit card over a certain period, the card issuer may offer to convert it to an unsecured card.
If you’re interested in this option, make sure the card issuer offers unsecured credit cards before you apply for a secured card. Check the terms and conditions of the card for details about when you can get your deposit back.
How to Get a Credit Card Without a Security Deposit
Even if you have poor credit or are new to credit, it’s possible to get a credit card without paying a security deposit. Here are some alternatives:
Find credit cards that don’t require a credit check: Some credit card issuers evaluate your credit application using alternative data, such as your banking history or your history of utility, rent, or subscription service payments.
Get a cosigner: Although most major credit card issuers don’t allow cosigners anymore, you may be able to find a card that does. A cosigner with a good credit score can enhance your odds of being approved for a credit card.
Become an authorized user on someone else’s credit card: If a family member or friend with good credit adds you to their credit card account, you can use the card for purchases. The primary cardholder is legally responsible for payments, but you can benefit from their positive payment history if the card issuer reports payments to the major credit bureaus.
Improve your credit: Obtain your free credit report from all three credit bureaus at AnnualCreditReport.com and ensure the information is accurate. Work on improving your credit scores by making timely payments and reducing your credit card debt.
Sign up for Experian Boost®: This free feature adds on-time payments of bills such as rent, utilities, and streaming subscriptions to your Experian credit history, potentially increasing your FICO® Score.
Get a credit-builder loan: A credit-builder loan deposits a lump sum into a savings account in your name. You make monthly payments on the loan, which are reported to the credit bureaus. After repaying the loan, you receive the money in the savings account, possibly including interest earned. Timely payments can benefit your credit score.
The Bottom Line
When you’re new to credit or trying to repair damaged credit, getting a secured credit card that reports to the major credit bureaus is a good way to build a solid credit history. No matter what type of credit card you obtain, using credit responsibly is key to improving your credit score. Late payments can negatively impact your credit, so consider setting up autopayments to ensure your bill is always paid on time.
For personalized mortgage services and expert advice, call O1ne Mortgage at 213-732-3074. Our team is here to help you navigate your financial journey and achieve your goals.
Learn More About Secured Credit Cards
What Is a Secured Credit Card? A secured credit card can help you build credit. These cards require a security deposit and are easier for people with poor credit to obtain.
How to Get a Secured Credit Card: If you’re trying to rebuild a bad credit history or build credit from scratch, a secured credit card can help. Here’s how you can get one.
How to Use a Secured Credit Card: A secured credit card can be a great way to build or improve your credit. With responsible usage, you can eventually transition to an unsecured card.
What to Do if You’re Denied a Secured Credit Card: If you’ve been recently denied a secured credit card, the card issuer is legally required to tell you why. Here are some steps you can take at that point.
What’s the Difference Between Secured and Prepaid Cards? Secured cards and prepaid cards both have some perks, but which one is right for you comes down to how you intend to use it.
How Long Should I Keep a Secured Credit Card? If you’re using a secured credit card to build or rebuild credit, plan to continue using the card until you accomplish your goal.
For any mortgage service needs, don’t hesitate to reach out to O1ne Mortgage at 213-732-3074. We’re here to assist you every step of the way.
