Secured credit cards for bad credit, no credit checks, easy approval
Secured credit cards are perhaps one of the most important tools for consumers with bad credit. The primary requirement with this card is that you must maintain an account with the issuing bank.Other than that, there is no reprieve on credit card bills, interest, and fees. Nonetheless, secured credit cards for bad credit are an ideal stepping stone when your credit status is severely damaged and are seeking a comeback.Of importance too is the fact that issuers of these cards share status reports with credit reporting agencies.
Finance concepts – not as difficult as you think
Despite the popularity and deep penetration of credit card usage, many consumers fail to understand how these instruments work. Nonetheless, despite the outward difficulty associated with understanding financial matters, the concept is quite simple. Credit when used responsibly, comes with rewards. Once you master this concept, you will always examine how best to make the rewards surpass the risks. On a larger scale, financial institutions apply the risk versus reward principle in consumer lending, and this is where you come in. If the lender ascertains that you present the least risk, they quickly approve your application for loans. Also, you get credit facilities at low rates of interest.
Credit card utilization – a worldwide thing that everyone does
On the contrary, where the creditor ascertains that you are a high-risk borrower, they may reject your application. If not, you get approved but at a high cost. In context, citizens with high credit scores have no issues securing new credit. However, those with low scores will still secure credit facilities but with difficulty. Credit card transactions are now commonplace worldwide. When you buy something, say a pair of jeans, and you swipe a card, the issuing company pays the store. They then record the loan on your account. Technically, the transaction is as if someone from the card company came to the store, handed you cash and asked you to sign a document compelling you to pay back at the end of the month with interest.
Credit card companies and credit bureaus – an inseparable working relationship
Credit card issuers always exercise extra precaution. When you apply for a credit card, the financial institution reviews your credit history. The objective is to weigh the likelihood of paying back, delaying payment or going delinquent. Since the task is a tedious one and involves millions of people and transactions, lenders cannot do the job on their own. Other companies, known as credit bureaus or credit agencies, assist with keeping tabs on borrowers’ activities. They sell the information in the form of credit scores to lenders, hence making it easy to determine the likelihood of paying or absconding.
The mark of a responsible borrower – industry specifics
With an excellent rating or a high credit score, you come out as a responsible borrower. Conversely, if you are on record as having accumulated debts and you keep missing payments, you end up with a low score or poor credit. The card company may not approve your request, and if they reluctantly do, the credit limit given will be modest. In a nutshell, that is a sneak peek on how the credit card industry works.
Secured credit cards – a welcome relief when reconstructing bad credit
Secured credit cards come in handy as credit history-building tools. A series of negative reports usually lowers your credit score. Fortunately, you can reverse the situation with the exact opposite. Once credit agencies start receiving positive information from banks, credit card companies, and utility service providers, your creditworthiness improves. As the name suggests, secured credit cards for bad credit require that you provide a deposit. Think of that deposit as your collateral, but mostly it also serves as your line of credit. The minimum deposit varies from one card company to another. There are cards whose deposit requirements are prohibitive and out of reach. Luckily, you have alternatives that can accommodate your budget.
Here are a few:
Citi Secured MasterCard
This Citi card charges no annual fee while the minimum deposit is $200. However, the card does not offer cash back rewards. You do not expect such benefits from a secured card, anyway. By maintaining regular monthly payments coupled with other responsible behavior, you could soon be on your way to having an unsecured card.
The issuer will first hold your deposit for one year and a half (18 months), while you keep the Citi Secured MasterCard. Before the term ends, Citi will notify you whether you qualify for a transition or not. If you do, the bank issues you with an unsecured card and refunds the deposit.
OpenSky Secured Visa Credit Card
Applying for this card is easy, especially when you are doing so in the background of a bad credit report. The issuer does not carry out credit checks. However, the card has an annual fee of $35. With a minimum deposit starting from $200, the OpenSky Secured Visa Credit Card is an excellent option. Besides, the card company refunds the deposit when you qualify for and acquire an unsecured credit card.
The deposit doubles as your credit line. With OpenSky working in collaboration with the three leading credit agencies, you can take advantage of the perks on offer to improve your credit status. To help its cardholders learn about responsible utilization, OpenSky has a set aside a page on its website where you can find useful tips and insights.
Green Dot primor Visa Classic Secured Credit Card
Green Dot offers a card that befits anyone seeking to rebuild their credit score while enjoying the trappings of a credit card.
The Green Dot primor Visa Classic Secured Credit Card is open to people of all credit types, whether high or low. Besides, you do not pay application or processing fees. Nonetheless, you will pay $39 per year as a fee for maintaining the card. You need not to worry since Green Dot has a broad credit limit of between $200 and $5,000 depending on what you can afford. On the other hand, purchases attract interest at the rate of 13.99%.
If used responsibly with regular reporting, you can restore your credit status since the issuer reports to Equifax, TransUnion, and Experian.
First Progress Platinum Elite MasterCard Secured Credit Card
The card’s issuer expedites your application quickly, meaning that you get your card within a short time. Second, there is an attractive annual fee pegged at $29. On the other hand, the card company does not check an applicant’s credit score or history.
The more reason for the quick turnaround time between applying for and getting your card. For the credit line, your deposit determines how much you would like to work with monthly. Applicants have a credit limit of between $200 – $2,000. What appeals most is that you get a full refund of your deposit upon transition.
You can use the First Progress Platinum Elite MasterCard Secured Credit Card to pay for your hotel booking or car rental. Besides, you can manage your account 24/7.
Secured Visa from Merrick Bank
Despite having an annual fee of $36, the benefits that come with this card far outweigh the pain. For starters, there is flexibility in the setting of your credit line.
The deposit you place determines your spending limit and you could all the way up to $3,000. Merrick Bank allows you to increase your limit anytime by putting an additional deposit gradually.
The bank has several options that you can use to fund your deposit. One year down the line, the card issuer subjects your account to regular reviews that result in a higher credit line. Another benefit stems from the bank’s affiliation with the major credit bureaus.
Each month, you get a free FICO score which is an essential step in credit-building. Most importantly, you can use the card in the US and everywhere else in the world.
Small monthly purchases, simple way to rebuild credit
Rebuilding credit while possessing a secured card is not a difficult task. Form a habit of making small monthly purchases. You could place a ceiling of, say, $10. After the transaction, wait for the statement at the end of the month.
Upon receiving it, pay your bill immediately. Repeat the process in the subsequent months. With these small expenditures, you realize that it does not affect your credit limit.
The good news is that your credit score starts going up. From a credit reporting perspective, you come off as a responsible borrower, and that is a good thing.
Utilization of secured credit cards – nuggets of wisdom
Secured credit cards are one of the ideal ways for you to restore your credit status. In all cases, you must pay a deposit to secure credit. However, issuing banks usually refund the deposit.
In most cases, you will start with an initial $200 credit line, but you can increase the credit limit as you wish. Once your application sails through, you should pay the deposit before the bank approves your line of credit.
Despite the seemingly attractive nature of secured credit cards, you must be careful to avoid late fees and penalties. Ensure that you make monthly payments on time. Also, having a credit limit does not necessarily mean that you spend all of it.
Learn to keep your utilization ratio near zero. For instance, if the arrangement provides a limit of $1,000 and you use $500 for purchases, your utilization ratio becomes 50%. Most importantly, keep a close watch on your credit reports. If possible, check them every month and be on the lookout for mistakes and errors.
Security deposit – collateral and not authority to spend
Transactions made using a secured credit card are like those in the traditional cards. At the end of the billing period, the card company sends you a statement detailing purchases made and other expenses you have incurred.
Your next step should be to settle your account. Note that you cannot use the funds held as security deposit. The money is just an incentive to keep you on toes.
Moreover, the lender holds that money as collateral just in case you have delinquent payments. They can recover what is overdue from the security deposit. Typically, lenders take such measures for severely delinquent accounts that remain unpaid for 150 days and above. However, you should not wait until things get that far as it could negate your access to a higher credit score.
Build credit responsibly
This far, we have established that a secured credit card is just like other cards. Their credit limits vary, but the situation depends on the money an applicant puts down as a deposit. Also, when you have no credit history or are dealing with a poor one, obtaining an unsecured credit card is almost impossible.
Banks and credit card companies consider you too risky. Nonetheless, the credit card industry has a solution, the secured credit card; it builds credit.
The following tips can be of great help:
Numerous institutions offer secured credit cards. Since they are different, their range of fees also differs. Visit their websites and find out their offers as well as the cost. Also, visit sites that review credit cards. You will find useful comparisons that can help in making an informed decision.
Choose your card
From the array of cards and the information gathered from your research, find a card that suits you. Ensure that the institution issuing the card reports to the major credit agencies. Also, go for a card with a low rate of interest. Annual fees are a common feature among most banks. Try as much as possible to choose a card with zero fees. At the same time, consider a card with an affordable minimum deposit.
Apply and pay the deposit
After you succeed at finding your card of choice, the next step is to complete and submit the application forms. You will find these on the card issuer’s website. Pay your deposit depending on the spending limit that you feel is within your budget. Most banks refund this deposit upon closure of the card or when you graduate to an unsecured card. Nevertheless, make sure you understand all the conditions that apply for you to get back the deposit.
Be a responsible user
Exercise caution and moderation when using your credit card. Do not just keep it, use it often since this is the only way you can build credit. However, keep your purchases to the bare minimum. An occasional cup of coffee or paying for a full gas tank at least once in a month is acceptable. Always spend what you can comfortably pay.
Pay off your balance promptly
Form a habit of settling your bills every month, be on time too. If you realize that you cannot manage to pay everything at once, a minimum payment will do. Avoid defaulting on your debts at all costs. Otherwise, you will affect your credit history adversely.
Now, let us recap. Secured credit cards require great care, just like any other “plastic money” instruments. The only difference is that for this type of cards, you must back it with a cash deposit, or collateral. What does that mean? If you put a deposit of $200 on a secured credit card, the $200 becomes your credit line.
If you are struggling with issues of adverse credit history and a poor credit score, a secure credit card can be your solution. Most lenders work in collaboration with the main credit bureaus where they report your payment status.
In the event of a default, the bank would have no option but to recover what you owe by using the cash deposit. However, if you let that happen, there will be drawbacks in your credit recovery journey.
Secured credit cards – the upside and downside
Most credit card lenders will refund your deposit upon account closure or when you transition to an unsecured credit card. In some financial institutions, the transition is automatic.
The only caveat is that you must have been of good standing by paying your bills on time every month without fail. Nonetheless, secured credit cards have their downside too. The requirement to provide a deposit in cash could hinder some people who may find the cash requirement as prohibitive and out of reach.
Also, some lending institutions charge application fees before you sign up, as well as annual fees. At the same time, if you are not careful, you could still end up with debt. Delayed payments attract fees, interest, and penalties.
Underutilization of credit services among Americans
Despite the numerous benefits that secured credit cards present to consumers, the sad reality is that there is underutilization. In a paper titled “The Secured Credit Card Pathway: Opportunities in Servicing Key Demographics” the Center for Financial Services Innovation states that in 2016, the around six million users had a secured credit card.
On the other hand, there were 108 million people with a less than desirable credit score. Immigrants, the CFI noted, enter the United States without a credit history. Their status leaves them exposed. The U.S. credit industry views them as uncreditworthy.
The immigrants are in a similar state as young Americans who too, do not have credit files. Even if they do, theirs are too thin. On the flipside, despite having full trust in the U.S. financial institutions, they believe that signing up for credit cards will be a source of trouble.
The unique case of immigrants
Financial experts have still got a long way to go in convincing immigrants to use secured credit cards as the door to build a credit history. On a broader scale, banks and other institutional lenders can package their products in ways that attract, not just immigrants, but anyone that is ready and willing to build credit.
One of the incentives that could work is to offer interest on cash deposit made. Doing so, makes the card have benefits like those you would find in a savings account. Many Americans cannot afford the $200 or $400 cash deposit required. Credit card companies could provide an option where applicants pay in installments.
A second approach would be to create content, in multiple languages other than English, that addresses the importance of having a secured credit card. Banks should invest in marketing campaigns bombarding the target audience with messages of how important it is for one to have a credit score and a credit history.
The financial inexperience in military servicemen and women
Americans in active military service have a unique and at times similar credit behavior as civilians. With frequent deployments taking place, displacement from ordinary life can lead to financial problems.
Additionally, living in military bases leaves the soldiers with no experience in handling finances. The federal government meets the soldiers’ financial needs without involving these servicemen and women directly.
Alternative financial service providers prey on the inexperience. A case in point is the mushrooming of payday lenders near military bases.
Financial emergencies strike when you are least prepared. Preparedness is critical, but you must plan and save. Sadly, many Americans do not have sufficient resources that cushion against financial shocks.
Secured credit cards can act as a line of credit under challenging times as well as a mode of savings. The cash deposit you pay as security is refundable, and the bank keeps it until the changes discussed earlier (closing a card account and transitioning to an unsecured card) take place.
A secured credit card provides an avenue for consumers that the financial system shuts out to enter the credit mainstream.
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