Although popular across the pond, secured credit cards have gone the way of the dinosaur over here. Thankfully alternative options exist \u2013 and which is suitable for you will depend on your situation and your aim.<\/p>
Secured credit cards are designed for people with bad credit who want to build their credit score. These credit cards require a deposit, referred to as a \u201csecurity sum\u201d, which is held by the card issuer while you have the card, and returned to you when you close the account.<\/p>
Your credit limit is generally equal to the security sum that you put down when you apply. That means the card issuer can never be out of pocket. It also makes these cards a bit of an unhelpful product: Can\u2019t borrow money? Why don\u2019t you lend a card issuer some instead?! In fact, the only reason you\u2019d take out a secured credit card is to make it possible and affordable to borrow money at some point in the future, once your credit score has improved.<\/p>
Like any credit card, secured credit cards require you to make minimum monthly repayments towards any outstanding balance, and you\u2019ll incur interest on any unpaid balance. However, there is an interest-free period if you pay your account off in full each statement period. Using the card to withdraw money from a cash machine will incur interest charges immediately.<\/p>
If you\u2019re offered a secured credit card, you\u2019ll need to pay the security sum upfront before you receive the card. Your security sum can\u2019t be used to make repayments, but if you fall behind on your minimum repayments<\/a>, the card issuer could use some or all of your security sum to pay off any outstanding balances on your account.<\/p> These days, secured credit cards are still available across the pond in the US but are no longer common in the UK, though Capital One has issued secured cards in the past, and Tymit Booster<\/a> operates on similar principles.<\/p><\/div><\/div><\/div> With a secured credit card, your monthly repayments are reported back to credit reference agencies, so provided you use your secured card responsibly (staying within your credit limit, making all repayments on time etc.) it\u2019s likely to have a positive effect on your credit score. Using a credit card rather than a debit\/prepaid card also gives you access to purchase protection<\/a> under Section 75 of the Consumer Credit Act for items individually worth \u00a3100-\u00a330,000.<\/p> Secured credit cards could be a step in the right direction, but only if you have the money to pay the deposit in the first place. Once you\u2019ve become a master of your credit handling capabilities and begin to see improvements in your credit score, you may no longer need to be tethered to a card with a security deposit \u2013 meaning you can apply for an unsecured card.<\/p><\/div><\/div><\/div> Having a poor credit rating is more common than you might think. Whilst bad credit<\/a> can reduce your chances of getting much-needed finance, the good news is that you have options for restoring your credit rating and demonstrating to lenders that you are responsible with money.<\/p> These cards are designed for people with a damaged or limited credit history, but unlike secured cards, they don\u2019t require money upfront. You build your credit score by simply using the card responsibly, and in many cases, can benefit from credit limit reviews after just 4-6 months. You\u2019ll need to go through a credit check as part of the application process, but the card issuer won\u2019t be expecting perfection.<\/p> These cards do charge a higher interest rate than mainstream cards (due to the higher perceived level of risk involved) so you should aim to pay off the balance in full every month.<\/p> Compare credit builder credit cards<\/strong><\/a><\/p> There are plenty of innovative fintech firms around that are always on the lookout for new ways to help people build their credit scores. Services like LOQBOX<\/a> and Pave<\/a> allow you to set up a direct debit to save a regular amount each month, which is then treated as if it were a finance repayment, with each repayment being reported to a credit reference agency.<\/p> There are also schemes such as CreditLadder<\/a> which allow your rent payments to be reported back to credit reference agencies and establish that you can responsibly meet regular payment obligations.<\/p> 10 ways to boost your score<\/strong><\/a><\/p> With a prepaid card, you can decide how much money to \u201cload\u201d it with upfront, but there are usually a few limitations (such as an overall maximum, and a maximum amount you can withdraw in one go). Essentially, think of a prepaid credit card as a direct alternative to having cash in your wallet, which you use for day-to-day spending. Prepaid cards don\u2019t normally have any effect on your credit record, because there\u2019s no credit involved.<\/p> However, a few innovative prepaid card issuers, such as Cashplus<\/a>, do offer a credit-building service, but it comes at a cost. They do this by essentially lending you a year\u2019s worth of account fees, which you\u2019ll then repay in monthly instalments.<\/p> Guide to prepaid cards<\/strong><\/a><\/p><\/div><\/div><\/div> Yes, you\u2019ll almost certainly need a credit check in order to get a credit card. but the good news is that almost all lenders will let you use an online \u201celigibility checker\u201d before you apply. This quick check will provide you with a good indication as to whether or not you\u2019ll get approved for the credit card you are interested in.<\/p> What\u2019s more, completing this initial eligibility checker won\u2019t have any impact on your credit score, as it\u2019s considered a \u201csoft\u201d credit search. Eligibility checkers can be extremely helpful for people with bad credit to gauge their likelihood of getting a certain credit card, but it\u2019s not a guarantee that you\u2019ll be approved.<\/p>Check your card eligibility<\/a><\/div><\/div><\/div>Why would I want a secured credit card?<\/h3>
What are the alternatives for people with poor or limited credit?<\/h3>
Low credit score and sometimes need to borrow? Consider a credit builder credit card<\/h4>
Just want to boost your credit score ASAP? Try other credit-building tools<\/h4>
Just looking for a payment card and don\u2019t need credit? Try a prepaid card<\/h4>
Will I need a credit check to get a credit card?<\/h3>