Credit Card Tips

What is a Secured Credit Card and Should You Get One?

Credit Card Tips
July 08, 2022
2.5 min. read

Credit card approval is not always easy to get, even more so for people with poor credit history and fluctuating income, like freelancers. In instances like these, secured credit cards are worth considering.

Suppose you fall into the categories mentioned and want to know more about secured credit cards. This article will define a secured credit card, its advantages, and the application process.

What is a Secured Credit Card?

A bank-secured credit card functions much like a traditional credit card. However, its key difference is that you must deposit cash to serve as collateral. Your cash deposit is a safeguard for banks in case you can’t make your payments. Since the bank feels more secure in granting you a credit card, you can expect an easier and faster approval process.

With the cash deposit in place, basic requirements like income documents will not be necessary for your application. The more straightforward approval process makes secured credit cards ideal for first-time cardholders or those with low income, poor credit history, or unstable income due to self-employment.

Additionally, having a secured credit card still affords you the same perks and benefits offered to unsecured credit card holders, like a loyalty or rewards program.

How Does a Secured Credit Card Work?

Upon cash deposit, secured credit cards can be used much like unsecured ones—you can purchase the same way and be charged the same fees and interest rates.

The most significant difference between unsecured and secured cards is your issuing bank will require you to open a time deposit or savings account when applying for the latter. This account will contain your cash deposit that serves as a contingency for issuing banks, ensuring you have the necessary funds to settle all fees.

Credit limits for these hold-out accounts can reach up to 90%. If you deposited P10,000, your issuer would allow a P9,000 maximum credit limit. It’s also worth mentioning that you’re still expected and required to make monthly payments. Failure to do so entitles your bank to take out funds from your hold-out deposit account to pay off your unsettled debts.

Additionally, canceling your card allows you to get back your deposit in full, granted that all debts and outstanding balances are paid.

Benefits of a Secured Credit Card

Now that you know what a security card is and how it works, here are the benefits you can enjoy with it.

Get approved even if you’ve always been denied for a regular card

Prior incidents of getting your credit card application denied do not affect your chances of getting a secured credit card. Issuing banks will only require you to make a cash deposit as collateral and have you open either a savings or time deposit account.

In addition, paying off your debts on time is enough for secured credit card issuers to grant you a reapplication.

A secured credit card helps you establish or re-establish good credit

Getting a secured credit card enables you to establish or re-establish good credit, as payments are recorded on your credit report. Timely payments and low credit utilization rates will help improve your credit score.

Just behind payment history, utilization rate or balance-to-limit ratio is critical in improving your credit score. Low utilization rates show you’re not overly reliant on your available credit, helping you build a positive credit history.

Proof of stable income is not required

Typically playing a crucial role in traditional credit card approval, proof of stable income is not part of the requirements for a secured card. Due to the collateral in your hold-out account, banks will simply deduct the unpaid balance in case of a missed payment.

Your deposit may earn interest if your account is an interest-bearing one

One of the most significant benefits of having a secured credit card is your account potentially earning interest, granted it’s an interest-bearing account. In addition, there’s a potential to earn extra rewards like credit monitoring services, travel insurance, and cash back.

You may qualify for a regular credit card if you make consistent on-time payments on your secured one

Most borrowers get a secured credit card as a stepping stone towards acquiring a regular credit card. A secured card, good credit scores, and punctual payments can qualify you for an upgrade.

Apply for a Secured Credit Card

Secured credit cards are a genuine alternative for people struggling with low or non-existent credit scores and insufficient income. First-timers and people who get their credit card applications constantly denied can rely on secured credit cards for their minimum requirements and fast application approval process.

Those looking for instantaneous cash injections for emergencies and other expenditures can turn to banks with secured credit cards and immediately get the necessary funds.

If you want to apply for a secured credit card from a reliable issuer, look no further than RCBC Bankard. Our credit card programs come with points, perks, and even budget monitoring tools that make your experience even more rewarding. Apply for your secured credit card today!

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