It’s possible to get an express credit card if you have a deposit account that can be locked in, and this is called a “secured” credit card.
Deposit requirements are typically between 110% to 200% of the total credit limit requested. This means that if the cardholder deposits $2,000, they will receive a credit of between $100 and $1,800.
On the other hand, even on their secured card portfolios, several credit card issuers offer bonuses. In certain situations, the down payment demanded may be far lower than the desired credit limit, perhaps as low as 10% of the latter.
In a separate savings account, this deposit has been placed. Banks and other financial institutions provide this perk because they’ve seen a marked decrease in delinquencies when customers feel they have something to lose if they don’t pay the full outstanding balance of their credit card account.
The holder of a secured credit card still has to make monthly payments, just as they would with any other regular credit card; however, should the cardholder default on a payment, the card issuer may choose to deduct the cost of any unpaid purchases from the security deposit.
Those with poor or nonexistent credit can benefit from the secured credit card because the vast majority of issuers make frequent reports to the three major credit agencies. The cardholder can then begin establishing (or reestablishing) a good credit history.
Even though the credit card issuer holds the deposit as a form of security in case of default, the deposit will not be deducted for missing only a few payments. Deposits are often only applied as a deposit toward outstanding balances in the event of account closure (either voluntary or due to serious delinquency).
Consequently, a credit card balance that is less than 150 days past due may result in being significantly greater than the card’s credit limit due to the accumulation of interest and fees. When this happens, the cardholder may end up with a far larger debt than the deposit they first put down, and they will not only exceed their initial deposit but also be saddled with the remainder of the debt.
The terms and restrictions of using a credit cardholder are often outlined in an agreement that is signed by the cardholder upon account opening.
If you have a spotty credit history or no history at all, you may still be able to obtain a credit card by applying for a secured card. They are commonly promoted as a means to repair damaged credit.
Secured credit cards typically have higher annual percentage rates (APRs) and fees and service charges than unsecured credit cards. It’s true that secured credit cards typically cost more than unsecured people, but this is only the case for specific people.
In some cases, a credit card will be secured by the borrower’s home’s equity.