What’s The Difference Between A Secured Credit Card And A Prepaid Debit Card
With a secured credit card, you’re using credit, even though it’s funded by your deposit. Your credit card usage and payment activity will be reported to the credit bureaus, which can help boost your score over time.
Prepaid debit cards look like credit cards, even down to the Visa or Mastercard logo, but they aren’t credit cards. With a prepaid debit card, you’re not using credit when you buy something. Instead, you load up the card with your money before using it. Since there’s no credit involved, the debit card company doesn’t report to the credit bureau, and you don’t build up your credit file.
Prepaid cards may help you stick to a budget, but they won’t actively help you improve your credit.
Applying For A Secured Credit Card
When you apply for a secured credit card, youâll need enough cash on hand to pay the deposit, which is usually one to two times the amount of the credit limit. Youâll likely also have to go through a credit check when applying, but donât fret, youâre virtually guaranteed to be approved for a secured card. If youâre a newcomer to Canada, though, youâll want to first check if the card issuer allows for applications from those without residency status.
In the case of some secured credit cards, you may also have to pay a set-up fee . This may either be a flat fee or a percentage of your credit limit. For example, if you apply for a secured credit card with a credit limit of $2,000 and the set-up fee is 3%, youâll have to pay $60.
Which Secured Card Is Right For You
There are a few things to consider when choosing a secured credit card: how much is the required deposit, how do you transition to an unsecured card and can you earn rewards?
One strong secured card option is the Discover it® Secured Credit Card, which requires a $200 deposit but comes with some good perks. You can earn rewards , there’s no foreign transaction fees and there’s no annual fee.
If you’re looking for a card that requires a smaller deposit, you might want to consider the Capital One® Secured Mastercard®. If you qualify for the low $49 or $99 deposits, you’ll still receive a $200 credit limit.
Also Check: Valero Apply Online
How Does The Go2bank Secured Credit Card Work
The GO2bank Secured Credit Card is designed for people who are looking to build or rebuild their credit with responsible use over time. Like a traditional credit card, you have a credit limit and make monthly payments. The big difference is that you make a refundable security deposit that acts as collateral if you default on payments .
Your ability to make the minimum payment determines the credit limit range, and your security deposit sets the limit within that range. Your credit line will equal the amount of this security deposit.
Your activity is reported to the three major credit bureaus every month. Complete, on-time minimum payments and other good behaviors like keeping your balance low can help build a positive credit file over time. Conversely, not making your minimum payments in full or on time each month, and other negative behaviors like consistently spending to the credit limit can damage your credit.
How Do Secured Credit Cards Work
Secured cards work differently depending on which credit card company issues them. But hereâs how getting and using a secured card could work if you decide oneâs right for you:
1. Applying for a Secured Card
As with any credit card, getting approved for a secured card isnât guaranteed. Each credit card company has its own policies and secured credit card requirements. Aside from a security deposit, there may be additional approval requirements.
It may help to learn more about how to apply for a credit card. You could also check whether youâre pre-approved for a Capital One card. Itâs quick and secureâand checking wonât hurt your credit score.
2. Making Your Deposit
The amount you pay as a security deposit can vary. A security deposit may be the same amount as your line of credit. For example, a $200 deposit might give you a $200 credit limit.
Some cards provide a credit line higher than the amount of the security deposit, based on your credit history. Capital Oneâs secured card could require only a $49 or $99 security deposit for an initial $200 credit line. Plus, if you deposit more money before your account opens, you may be able to get a higher limit.
Some card issuers allow you to fund your deposit over a period of time. Others may require that it all be paid upfront.
3. Using Your Secured Card
4. Getting Your Deposit Back
Deposits are usually refundable. But credit card issuers each have their own policies about when and how refunds are given.
Recommended Reading: Cabela’s Rewards Program
Pros And Cons Of A Secured Credit Card
Like most things in life, there are positives and negatives to this kind of card.
The pros include:
The ability to rebuild your credit if you have limited or damaged credit. A lower credit line so you wont go over your limit and risk running a high balance. Benefits like fraud protection and cash back. The ability to switch to an unsecured card with responsible use. Potentially lower interest rates than an unsecured card.
The cons include:
It requires a security deposit. It doesnt come with the same robust benefits as an unsecured credit card. The interest is higher than a regular credit card. The issuer will need to run a hard inquiry on your credit report.
What Are The Benefits Of A Secured Credit Card
If you have no credit or poor credit, a secured credit card enables you to build your credit score. Simply use your card for everyday purchases anywhere credit cards are accepted, and then pay your monthly bill on time. Most financial institutions report the activity on your secured credit card to the major credit bureaus. Its this reporting that allows you to build a strong credit history. Because this reporting is so important for building your credit history, make sure you open a secured credit card with an institution that takes this step.
Don’t Miss: Ulta Credit Card Credit Score
What Is A Secured Card And How Does It Work
A secured credit card requires an upfront deposit, which is usually equal to the credit limit on your card. So if you deposit $300, you’ll typically end up with a $300 credit limit on your card.
Your deposit will be held as collateral by the credit card company. If you don’t pay your bill, the credit card company will use your deposit to cover it — and most likely cancel your credit card.
If you consistently pay your bill on time, the credit card company may increase your credit limit without requiring you to deposit more money. In turn, it may also refund your deposit after you’ve demonstrated responsible credit card usage. Your deposit will also be refunded once you close your account — assuming you do not hold a balance.
Not all secured cards report to the three major credit reporting bureaus, Experian, Equifax and TransUnion. If you want to improve your credit score, apply for a secured card that will report your credit activity.
How To Use A Secured Card Effectively
Although they require a deposit, secured credit cards are a powerful tool for rebuilding credit. Here’s how to use one most effectively:
Use the card sparingly, making only one or two small purchases every month
Pay your balance in full every month before the due date. When you pay in full, you won’t be charged interest. Interest rates on secured cards are generally higher than those on unsecured cards.
Keep an eye on your credit score over time when it has meaningfully improved, ask your issuer about upgrading to an unsecured card
Also Check: How To Cancel A Chase Checking Account
How Fast Will A Secured Credit Card Raise My Score
The length of time it takes to raise your score, no matter what recovery actions youve taken, is subjective to where you currently stand. For example, if youve missed payments in the past, each of those could remain on your report for up to eighteen months.
If youre working with little to no credit history at all, you could see changes to your score as soon as six months after opening your secured card. It always takes a few months of consistent payments for lenders to report information to the credit bureaus, so be diligent about your payments.
Responsibly using a secured credit card has a major impact on your FICO score and its a great option for those working to rebuild damaged credit or who cant get approved for a traditional credit card.
Secured Credit Cards Vs Prepaid Cards
Prepaid cards seem similar to secured credit cards. You have to pay money before you can use both types of cards, and both are typically issued by banks and have a Visa or Mastercard logo, or bought in stores.
But with prepaid cards, youre using your own money to make purchases not money borrowed from the issuer. You load money onto the card, and then the issuer uses that money to pay for your purchases.
Since these cards dont extend any credit, your account activity isnt reported to the credit bureaus. That means youre not building a credit history by using a prepaid card. Prepaid cards do not charge the interest charges or fees that secured credit cards do. But you wont earn interest or collect rewards with a prepaid card, either.
If building credit is your goal, a secured credit card is your best bet.
Read Also: How To Pay Best Buy Credit Card On App
Graduate From Your Secured Credit Card To An Unsecured Card
One goal once you are successfully using your secured credit card is to graduate to an unsecured credit card. Once you do, consider keeping up your financial health by moving the funds you originally used to secure the credit line on your secured credit card into an interest-bearing savings account that you contribute money to from each paycheck . Youve worked hard to build a positive credit history, and should celebrate what youve achieved while continuing to plan for your financial future.
Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Minimum Security Deposit: A minimum security deposit of $200 is required to open this account and your security deposit must equal your credit limit. Your maximum credit limit will be determined by your income and ability to pay.
Builds credit with responsible use: Discover reports your credit history to the three major credit bureaus so it can help build your credit if used responsibly. Late payments, delinquencies or other derogatory activity with your other credit card accounts and loans may impact your ability to build credit.
Improve Your Credit Series: How Fast Does A Secured Credit Card Work
Home \ \ Improve Your Credit Series: How Fast Does a Secured Credit Card Work?
Join millions of Canadians who have already trusted Loans Canada
Whether youre trying to correct past financial mistakes by improving your credit score or are a first-time credit user, a secured credit card might be the missing tool youve been looking for. A secured credit card, when used responsibly, is a great and effective way to build a positive financial history and credit score.
Depending on your fast financial history and any issues you might have experienced, a secured credit card can help improve your credit in as little as 6 months. Unfortunately, there isnt any magic formula for credit improvement when it comes to secured credit cards. This means that everyones experience is unique so dont get discouraged if it takes up to a year for you to see improvement, in the end, it will be worth the extra time.
You May Like: Close Chase Card
Home Trust Secured No Fee Visa
- 19.99% interest rate on purchases
- Not available to residents of Quebec
The Home Trust Secured Visaâs biggest appeal is that it doesnât have an annual fee. The card does have a standard annual interest rate of 19.99%, but as long as you pay off your balance in full every month, you wonât owe any interest. Like with other Home Trust credit cards, thereâs a $12 inactivity fee if you donât use the card at least every 12 months, but considering this fee can easily be avoided by making at least purchase and that youâll want to use the card at least somewhat regularly to establish a positive payment history, itâs not that big of an issue.
How The Td Cash Secured Credit Card Works
- Apply onlineIf qualified, you’ll receive conditional approval
- Make a security depositOnce conditionally approved you’ll open a TD Simple Savings account and make a deposit to secure your credit line
- Set your credit limitYour security deposit is your credit limit. That means you can decide the amount that’s best for youfrom $300$5,000, subject to credit approval
- Graduate to an unsecured cardIf you use and maintain the card and keep it in good standing, you may be eligible to graduate to an unsecured TD Bank Credit Card. Please keep in mind, not all accounts qualify for graduation. A decision to graduate is based on responsible credit management across all of your credit cards and loans, including TD and others.
Don’t Miss: Comenity Bank Cards Ashley Stewart
How Secured Cards Can Improve Your Credit
When you responsibly use a secured card, making payments on time and in full, this information will be sent to the three main credit bureaus, Experian, Equifax and TransUnion, which helps boost your credit score and puts you on the path to qualifying for an unsecured card.
Payment history is the most important factor of your credit score, making it key to always pay on time. If you consistently make on-time payments with your secured card, positive information will be reported to the credit bureaus, which helps you build credit.
Your First Card Is A Keeper
Now that you know all the student cards and secured card pros and cons its easier to know which one is the best for you. Keep in mind that there is no such thing as the best card, it will be the one that best fits your needs and goals.
Even if you want to graduate to a more grown-up card in the future, you may want to keep your first card open for a long time. Closing your oldest card can impact your length of credit history, which accounts for 15% of your FICO score.
Recommended Reading: Ultamate Rewards Credit Card Login
Tips For Using A Secured Credit Card
- Itâs absolutely critical that you make at least your minimum payments on time every month by the due date shown on your secured cardâs statement. A secured credit card isnât a guaranteed way to improve your credit score, and will only help you if you use it responsibly. Missing payments can further tank your credit score and lead to hefty interest charges and additional late fees.
- Keep track of your monthly billing cycle and payment due dates by setting up calendar reminders on your smartphone or email alerts from the card issuer.
- To avoid owing any interest, ensure you donât just make your minimum payments but pay off your entire balance owing in full. Paying off your balance in full can also indirectly help improve your credit score and can signal to creditors you arenât overleveraged and can manage to pay off your balance regularly.
- Your secured card shouldnât be stored away in a drawer never to be used. Instead, try using your secured card sparingly at least once every month or two to cover smaller purchases you can afford to pay off in full at the end of your monthly billing cycle. Youâll want to establish a payment history and prove you can make payments on time, and that canât be done if your secured card isnât active. Remember though, avoid making large purchases or overspending on your secured credit card.
Do Secured Credit Cards Help Your Credit
As covered above, yes they do. In fact, itâs arguably their biggest selling point.
Activities on secured credit cards are reported to credit bureaus like Equifax and Transunion. So, if youâre using a secured credit card and paying your statements on time every month, there will be a positive impact on your payment history. Payment history is the single largest factor that goes into calculating your credit score and is a measure of how diligently you make your minimum payments on time. Even missing just one or two payments can cause a significant drop to your credit score.
A secured credit card can also help you either lengthen or establish your credit history, which can be especially important if youâre new to Canada, have no proven history of managing credit in the country, and canât be approved for any other accounts.
A secured credit card wonât lead your credit score to jump to good standing after one billing cycle, but the idea is to keep paying your bills on time until your credit score is considered good. A good credit score starts at 650 , so you should strive for as high of a number as possible.
Read Also: Credit Pulls Transunion