How to Get a Secured Credit Card

A secured credit card is among the two main credit cards from financial institutions such as banks and credit unions. The other one is the unsecured one which is usually hard to get, especially if you have no borrowing history. Credit cards are essential since they help you borrow money from your issuer. It becomes convenient, especially when you have no money left to push the rest of the days as you wait for your salary payments. You will learn about how to get a secured credit card shortly.

Usually, before getting a credit card, you must know why you want it. Since it is like a loan, you need to know that the payment of the debts comes with an interest rate. That means you have to pay what you borrowed plus something on top. That is how the issuers make money from the borrowers. In short, the cards are like loans whereby you should pay your amount as per the agreements.

It is crucial to note that credit cards are revolving loans. You can repeatedly borrow as long as you repay your debt early enough and per the agreement. Defaulting your card debt can be detrimental to your overall FICO scores. Suppose you are wondering what FICO scores are, you have to understand that they are a numerical representation of your creditworthiness. The more your scores, the better your scores, the higher your limit, and vice versa.

What is a credit card?

A credit card is a special kind of payment card that can be metallic or plastic that allows you to borrow finances from your issuer. You can either have a secured or unsecured credit card, as I have mentioned. However, the two usually function the same in their usage.

The secured one requires some security deposit whereby you have to deposit money in your checking account to get your card. On the other hand, unsecured credit cards allow you to get them depending on your FICO scores. That is the main difference between secured and unsecured credit cards. The more your scores, the higher your credit limit.  

How do credit cards work?

How to Get a Secured Credit Card

Credit cards operate in a simple manner whereby you can use them to buy goods and services when the need arises. Usually, when you get a credit card, you get a borrowing limit for that particular month. That means you cannot borrow beyond that. Once you exhaust your limit, you have to repay your debt to borrow again. In most cases, issuers allow you to repay the borrowed amount at the end of the month.

Secured cards limits apply depending on the amount of deposit you make. The more your deposit, the more your credit limit. The cards are for growing your scores, especially if you have no borrowing history. Once you deposit, your card issuer locks the funds until you attain the required points and then unlocks them for use in your checking account. At that point, you can get an unsecured card for your transaction needs. Remember that the deposit you make is for repaying your debt if you cannot make your payment at the right time.

Earlier on, I mentioned about FICO scores. But do you know how you get them? Every time you use your credit card, you get credit scores. Your card issuer reports the usage activities to the credit bureaus, who then use the information to calculate your FICO scores and compile your credit report. Activities reported include debt payments, buying with the card, defaulting, etc.

How to get a secured credit card?

If you want a secured credit card for rebuilding credit, it is not that difficult to get it. You can apply online from your bank or credit union. Some mobile money platforms also issue secured credit cards.

The first thing you should do is open a checking account where you will deposit the required amount of money to act as security for the loan you will get. A checking account is easy to open once you gather the requirements such as the Social Security Number, an identification document, email, phone number, and physical address. Depending on your bank, one can open an account online or at a branch.

Once you have created your account, you can proceed to deposit money as per your wishes. Remember that the amount of money you deposit will determine your credit limit. Therefore, you should deposit as much money as possible if you want high limits. You can apply for a credit card online and have it in your mailbox or visit the nearest branch and get the card.

Upon getting your card, you should activate it to start using it. Activating online requires you to provide the card details, including the card number, expiry date, and the security code. The activation process happens at the website of your card issuer.

Can you get a credit card with no credit?

You can get approved for a credit card with no creditif you apply for a secured credit card. As I mentioned earlier, one does not need FICO scores to get a credit card. You already have a guarantee which is your security deposit. 

The good thing with secured credit cards is that they charge a small interest rate since fewer risks are involved. The unsecured cards are the ones that require you to have FICO scores.

What are the differences between secured and unsecured credit cards?

I have already mentioned that the difference between credit and debit cards is that secured credit cards require you to deposit a security deposit while unsecured ones require FICO scores. However, we have other differences that arise between the two cards. They include the following.

  • Secured credit cards have low-interest rates compared to unsecured ones for bad credit. That is because they have lower risks involved.
  • You have the power to determine your limit with a secured credit card, while the limit of unsecured cards depends on your FICO scores.
  • Secured cards do not require any credit scores, while unsecured ones require you to have some scores.

How long do you take to build credit with a secured credit card?

A secured card is the best for building credit, especially when starting from scratch. However, the scores do not build immediately after applying for the card since you must use it for a particular period. But for how long does it take to build credit with a secured credit card? Usually, it takes around six months to see some changes in your scores. That is, if you use your card appropriately.

How to grow my scores?

There are various ways you can grow your scores to qualify for better credit cards and loans. They include the following.

  • Get a secured credit card. You can get a secured card if you build your scores from scratch. Also, the card is suitable for those with bad scores. If you use the card well, you will grow your scores accordingly.
  • Mix credit. Mixing credit means getting different kinds of loans. Depending on your payment capabilities, you can get a personal loan, auto, personal, etc. You will therefore have different issuers reporting your credit usage. That way, you will increase your scores fast.
  • Clear existing debts. If you have low scores because you defaulted on loans, you should pay your debts to be clean. The concerned lenders then remove your name from the bureaus when you pay your debt.
  • Keep your cards active. When your cards are dormant, your issuer is not reporting your usage. That affects your overall scoring. However, if you keep them active, you will be able to grow your scores.

Which is better between, secured and unsecured credit cards?

Each card is good, depending on the reason why you took it. Secured cards will help you grow your scores from scratch even if you have never taken a loan. However, the only disadvantage is that you require a deposit to get them.

Unsecured ones require FICO scores, and the more your scores, the higher your limit. If you have low scores, your limit will be lo]w too since you have a chance of defaulting. Good scores attract higher limits since there is a low risk of defaulting on your loans.

Therefore, unsecured credit cards are the best for your day-to-day usage for general usage, especially if you have good scores.

Are credit cards secure?

Credit scores are secure since they have security measures that help to keep your money secure. First of all, the cards have PINs that allow you to prevent unauthorized withdrawal of money from ATMs by other people. Again, the cards usually come with Zero Liability Protection. When you lose your card, you are not liable for card misuse.

Furthermore, if you have an online account for your card, all issuers have systems that prevent third parties from accessing your account.

Bottom line

A secured credit card is a payment card that allows you to deposit money to your checking account to get it. The money you deposit acts as security for your loan. If you cannot repay your loan, your issuer uses the funds to recover their money. You can have a secured credit card from a bank, credit union, or Mobile money company.