If you have been trying to get approved for a credit card but your application has been denied by more than one credit card issuer, then you are probably familiar with the term credit card reporting credit. Here’s what it implies and how it differs from traditional credit cards.
What Are Credit Cards Reporting Credit?
By definition, a credit card reporting to credit bureaus is an electronic payment method that allows you to pay for goods and services with funds you don’t personally own for as long as you keep returning the money you’ve borrowed from the card issuer at the end of each billing period and reports this activity to 3 main credit bureaus.
However, credit reporting cards differ from many similar payment options in that they report your cardholder behavior to the three main credit bureaus, thus giving you an opportunity to build or improve your creditworthiness through the responsible use of a credit reporting credit card.
However, many credit report cards come with one additional clause:
In order to get approved as a cardholder, you need to secure the card with your personal funds for a certain period of time. This should serve as a deposit or collateral to the card issuer, which for some reason needs a guarantee of your ability to return the funds you borrow.
Are Credit Reporting Cards the Same as Credit Cards?
The easiest way to explain what credit cards reporting credit are is by specifying what they are not. But in order to understand any of these explanations, you first need to adopt the basic terminology used by credit card issuers to describe and categorize various types of payment options.
The umbrella term “credit card” stands for any payment method that involves an electronic payment card and an option to borrow funds from a card issuer – a bank or some other financial institution that issues credit cards. This is the difference between credit and debit cards.
Credit Report Cards Are Credit Cards
Credit reporting cards fall under the category of credit cards.
This means that they allow you, the cardholder, to pay for goods and services with the money you’ve borrowed from the card issuer. Essentially, all credit card funds function as short-term loans – at the end of each month, you are obligated to pay the loan back to your card issuer.
More often than not, this short-term loan comes with additional agreed-upon expenses that range from general, such as interest and annual fees, to very specific. At the end of each billing period – which is usually a month – a cardholder pays fees together with what they owe.
Variety of Credit Cards’ Types
There are many different types of credit cards and just as many classifications.
Furthermore, not every individual can get approved for every type of credit card. This is because credit card issuers take into account an individual’s credit score – an individual’s creditworthiness that speaks of their ability to pay back the money they borrow from the bank.
There are credit cards for excellent, good, fair, bad and no credit score.
Credit cards reporting credit belong to this last bracket – credit cards for bad or no credit score.
Are Credit Reporting Cards the Same as Secured Credit Cards?
A different classification separates secured from unsecured credit cards.
Similar to prepaid debit cards, secured credit cards require an advance from a cardholder. In order to obtain and start using a secured credit card, you need to submit a refundable security deposit that serves as collateral in the event that you can’t pay back the funds you’ve spent.
The refundable security deposit is held by the card issuer to be used only after you, the cardholder, fail to make payments for several months in a row – which is also known as “defaulting“. This is only a last resort for the issuer, rendered needless by the responsible card behavior.
Most secured credit cards have a grace period that allows you to avoid interest charges by paying the bill in full amount in due time. The security deposit will not be used to cover monthly payments unless you stop paying your credit card statements for a longer period of time.
Depending on the specific card issuer, more or less the same principle applies to credit cards reporting credit. Nevertheless, credit reporting cards are not secured cards any more than they are prepaid debit cards. But secured credit cards are, by definition, credit reporting cards.
Who Are Credit Reporting Cards Intended For?
All types of payment options that require a safety deposit are designed for individuals who can’t get approved for more traditional credit card types. The main reason their applications get denied is that card issuers don’t have any guarantee of them being able to make their payments.
By rule, these individuals have a poor credit score or don’t have any credit history.
In general, credit cards reporting credit are intended for:
- People with bad credit score, no credit history, or low to nonexistent income.
- For Those who don’t want their credit score checked upon card application.
- And, people who want to boost their business’ credit score without affecting their personal credit score.
Credit reporting cards are less suitable for other individuals.
Payment options for higher credit scores usually boast more favorable terms than payment options intended for individuals with poor credit score and no credit history. Although this doesn’t have to necessarily apply to expenses and fees, it usually does to perks and rewards.