Credit cards are an essential financial tool that anyone can take advantage of. Credit cards are payment cards that can help you cover the cost of goods and services. Rather than saving up your money to pay the cost in full, you can use your credit limit to make several small monthly payments.
If you have a bad credit score, you may want to apply for a secured credit card. Learn more about the secured credit card application process and if you can get your deposit back.
What Is a Secured Credit Card?
Secured credit cards work similarly to unsecured credit cards. Still, a secured card is more accessible to individuals with unestablished credit or bad credit scores. You receive a credit limit that allows you to make purchases and withdraw cash from an ATM. The only difference is the application process with an addition of a down payment.
When you apply for an unsecured credit line, the credit card issuer will pull your credit report. Your credit score determines your eligibility, credit limit, and interest rate. Applicants with a perfect credit score can expect better credit card offers from credit card companies.
When you apply for a secured credit card account, you need to provide a cash deposit. A secured card deposit lowers the lending risk for the credit card issuer. If a borrower fails to meet the financial requirements, then the lender can keep the deposit.
How Much of a Deposit Do I Need for Secured Credit Cards
Secured credit cards work very well for people with a bad credit score but who want a higher credit line. Secured credit card deposits equal the amount of money you have to spend. Secured cards work similarly to using cash. For example, if you provide a card issuer with $200, your credit line is $200.
Every credit card company requires a different security deposit amount. Suppose you only have a few hundred dollars to use as a security deposit. In that case, your credit card options may be more limited. However, you can find a credit card company that does not have a minimum security deposit requirement.
Can I Get a Refund on My Secured Credit Card Deposit?
If you apply for a secured credit card, you will need to use a security deposit. But can you get a secured credit card deposit refund?
Rest assured that any money you use to obtain a secured credit card is usually entirely refundable! But in order to get your money back, you need to either close your credit card account or convert your secured credit card into an unsecured credit card.
Your credit card issuer may extend an unsecured credit card offer if you prove to be a diligent borrower who has built credit. You can get a higher credit limit and competitive interest rates with an unsecured card. In addition, you could get a cash advance on a credit card and pay fewer fees with an unsecured card.
If you want to close your credit card account, you can talk to a bank agent or start your request online. If your account balance is zero, you may close your credit card account quickly. If your account balance is not zero, you will need to pay your monthly bill before your credit card account can be closed. You can typically expect to receive your refundable security deposit in 30 to 60 days.
Why Use a Secured Card Instead of a Traditional Credit Card?
A traditional credit card does not require a security deposit, so you may feel inclined to apply for one instead of a secured credit card. But if your credit score is less than ideal, unsecured credit cards may not even be an option for you. When a lender runs a credit check, you may be automatically disqualified.
Applying for an unsecured credit card is possible. Still, the offers you may receive are likely to be less than ideal. Creditors may offer sky-high interest rates to offset the lending risk of working with a borrower with a bad credit score. Using the credit limit of a new unsecured credit card can be exciting, but the financial risks are higher.
You Could Build Better Financial Habits
There are plenty of reasons to get a secured credit card. By learning how to manage your finances in a controlled environment, you can build good financial habits and slowly boost your credit score.
A secured credit card can motivate you to be conscious of your spending. Due to the low credit limits, you may likely use a secured credit card responsibly. Having a higher credit limit can make it harder to manage impulsive spending. You can make better purchase decisions by limiting your budget to a few hundred dollars in your credit card account.
You Could Improve Your Credit Score
When you use secured or unsecured credit cards, the creditor reports your financial information to the credit bureaus. There are three credit bureaus that collect your financial information in the US: Equifax, Experian, and TransUnion.
Positive information, such as on-time payments, will help you build credit over time and look financially stable to future lenders. The higher your credit score is, the more financial opportunities will be rewarded to you. You will be entrusted to use credit responsibly, and you could get access to better reward-based credit cards. Having higher credit scores can make taking out a loan a good idea!
When you have bad credit, your financial options are limited. Payday loans for bad credit are an option for financial emergencies. Still, the high rates can quickly leave you stuck in a debt spiral.
A credit score is determined through the calculation of five categories:
- Payment History (35%)
- Total Debt (30%)
- Length of Credit History (15%)
- New Credit Inquiries (10%)
- Credit Mix (10%)
Your credit score can improve when you improve your payment history on a credit report! The second best thing you can do for your credit score is to keep your debt to credit ratio low. By minimizing the use of your credit line, you can prove to creditors that you are financially responsible.
Although you may have to deal with the burden of a security deposit to qualify for a secured credit card, the benefits far outweigh the cons!
References:
What Is A Secured Credit Card And How Does It Work?
Secured Credit Cards