How to Get a Secured Credit Card
Steps to Finding and Applying for a Secured Credit Card
If you're having trouble getting approved for a regular credit card, a secured credit card is a good alternative. A secured credit card is used like a regular credit card - you make purchases on your card and then make at least the minimum payment until you've paid off your balance. The difference with a secured credit card is that you make a security deposit as collateral for the credit limit.
Because you’re backing your credit limit with cash collateral, secured credit card issuers are less picky about your credit history and are much more likely to approve you despite a limited or bad credit history. Here are the steps you should take to get a secured credit card.
Scope out the secured credit cards you like.
There are dozens of secured credit cards on the market, which gives you a good selection to choose from. Almost all the major credit card issuers have at least one secured credit card in their credit card offerings, so you won't have trouble finding a secured credit card. But not all secured credit cards are created equally, so it's important to pay attention to the terms to be sure you don't end up with a dud.
The best secured cards have a low interest rate, low or no annual fee, and report to the major credit bureaus each month. Credit reporting is key so your payment history helps you improve your credit history, allowing you to qualify for better credit cards in the future.
Another good feature of a secured credit card, but not necessarily a must-have, is the ability to convert to an unsecured one after several months of on-time payments.
Estimate the security deposit you need to make.
Minimum security deposits for secured credit cards range from $200 to $500 with the option to pay more than the minimum for a bigger credit limit. The Capital One Secured MasterCard is arguably one of the best secured credit cards. If you qualify, you can pay a security deposit for as low as $49 for a credit limit of $200.
If you don't already have the funds for a security deposit in the bank, save what you need by setting aside money each month. You'll typically have to make the full security deposit within a few days of being approved, so wait until you have your entire security deposit before applying.
Complete the application online, in person, or by mail.
If you apply online and are given instant approval, the issuer will give you instructions for making your security deposit. You can typically make your deposit online, over the phone, or by mail. Phone or online deposits will process faster allowing you to get your card faster than if you have to mail a check or money order. Once the issuer receives and processes your security deposit, you'll get your new credit card in the mail.
While credit requirements are more lenient for secured credit cards, you can you can be denied for certain secured credit cards depending on your credit history. For example, you can be denied if you’ve been out of bankruptcy for less than a year, you have current delinquencies on other accounts, or you have a negative history with that bank on another account. If you’re denied, the card issuer must mail a letter explaining why you were denied. The letter will also tell you how you can access a free copy of the credit report used in the decision.
From Secured to Unsecured
Many secured credit cards will automatically convert to an unsecured card after 12 to 18 months of managing your card well. That means making all your payments on time and keeping your balance below the credit limit. If your card doesn’t convert automatically, you can try applying for a regular credit card after a year. There’s a good chance you’ll get approved if you’ve handled your secured credit card responsibly.