3 Steps You Need to Go Through in Order to Get a Secured Card
The application process for getting a secured credit card is very quick and easy. Here are the steps.
1. Make Sure You Meet All the Necessary Requirements
Once you’ve found the right secured card provider for your needs, check all their requirements, and your credit score (if you have one), so that you can be sure that you’ll get the approval. Fix any inaccuracies that may exist in your credit reports, and make sure you pay off any debts you may have.
2. Fill Out and Submit Your Application
You can apply for a secured credit card either online or in person. Whatever the case, you’ll need to provide your personal and financial information, including:
- Name
- Address
- Date of birth
- Social security number
- Phone number and email address
- Employment information
- Annual income
- Banking details
- Your desired security deposit amount
You’ll need to wait a couple of days for the bank to review your application, and check your credit report. If you have no unpaid debts, no recently declared bankruptcy, and no history of consistently missing payments, you’ll get your approval.
3. Make a Deposit upon Approval
Once your application is approved, your bank will ask you to make your deposit, so that it can open your account. As soon as everything is in check, your bank will mail you your secured credit card, which will arrive at your address within 2-3 weeks. Some banks require the necessary funds to be in your savings account before approval, while others allow a certain deadline from the time of the approval, in which case you can probably provide the deposit in installments.
Why Is the Deposit Mandatory When Getting a Secured Card?
Banks that provide secured cards usually don’t check your credit score. You could have a very bad credit score and still get a secured card. However, those banks need to have a guarantee that their customers will pay off all their debts. They simply can’t go about handing credit cards to everyone without considering potential risks.
This is why a security deposit is mandatory. You need to provide your secured credit card issuer with collateral, that is, security for repayment. Because if you don’t repay your debt, the bank gets to keep the deposit and continue operating smoothly. If you do, and you do it on time and in full, you can get your deposit back.
How Big of a Deposit Do I Have to Make?
You decide how big of a deposit you will make, but different providers have different requirements regarding their minimum and maximum deposits. The lowest deposit you can make is about $49, while you can choose to go as high up as $10000. Most of the banks allow their customers to make a security deposit of up to $5000 to obtain a secured credit card.
Can I Get a Refund on My Deposit?
Yes, you can. If you always provide full payments on time, you can get your entire security deposit back, once you upgrade to an unsecured credit card. It will show that you’re a responsible borrower, so there will be absolutely no reason to deny you your rightful refund.
5 Common Mistakes First-Time Secured Card Owners Make
If you get a secured credit card, make sure you avoid the following pitfalls that could hurt your credit score.
1. Missing Payments
If you ever miss a payment, your credit card provider will hit you with a late fee. However, late payments can also hurt your credit score, and accrue interest rates. A single late payment (30 days) will hurt your credit score by 90-110 negative points, and it will stay on your credit report for 7 years. What’s more, if you don’t provide your monthly payments on time, you won’t be able to get a full deposit refund once you qualify for an unsecured credit card and pay off your balance in full.
2. Making Minimum Monthly Payments
Many first-time owners of secured credit cards take the credit utilization ratio too seriously in that they make only the minimum monthly payments. However, while it’s important to keep the ratio low, it’s also vital to carry a balance of up to 30% of your credit limit. That way, you can pump your credit score. You should make multiple small purchases every month to keep the ratio low and show the credit bureaus that you’re really using the credit, and that you’re using it responsibly.
3. Maxing Out Their Secured Card
Another mistake is maxing out the card, which can also hurt your credit score. People think that the more purchases they make, the faster they’ll build or improve their score. However, going over 30% of their credit limit makes their credit score drop significantly.
4. Not Keeping Track of Their Purchases
Keeping track of your purchases is paramount for keeping a good balance on your secured credit card. This can be a bit challenging when you switch from cash to a credit card, simply because you don’t actually have the physical money in your wallet. But if you don’t keep tabs on your purchases, you could increase your credit utilization ratio, and hurt your credit score. Avoiding this mistake will also help you develop good spending habits.
5. Getting Too Many Secured Cards
This is one of the most common mistakes with first-time secured card owners. It can be tempting to get several cards, but that could greatly lower your credit score. Even if you’re a responsible borrower, and always pay everything in full and on time, your lenders may start thinking that you carry a risk to them. They wouldn’t want you to max out all your credit and fail to provide the necessary payments, so they could decide to cut you off completely.
