Secured cards can help those new to credit cards build up a strong credit history, and allow those with low credit scores to prove they've gotten better at managing money. You'll have to find a bank or credit union that offers a secured card to its members who qualify. If you've had a longstanding relationship with a particular financial institution and have handled your accounts there well, you'll likely get the best account terms.
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Secured cards are relatively easy to get, but approval isn't automatic. You'll have to fill out an application online or on paper, depending on your lender. This requires you to provide personal information, including your Social Security number, that allows lenders to verify your identity and check your credit history. You'll also have to list your annual income, which helps reassure the issuer that you have enough money coming in to handle your payments.
You'll have to send the card issuer a deposit, either with the application or immediately after approval. A typical minimum amount is $300. This goes into a collateral account that isn't touched while the account is open except in very specific circumstances. Your credit line generally will be part or all of this amount. The funds remain with the lender until you close the account or become eligible for an unsecured card -- or until you don't pay your bill for an extended period. In the latter scenario, the lender may transfer the funds to pay off the overdue balance.
Some applications are approved instantly, while others require further review and will keep you guessing for an extra few days. Regardless, your deposit has to go through before the card is activated. The timeframe depends on the card issuer's policies, as well as how the transfer takes place. If you're applying at the bank or credit union where you have your checking and savings account, you should be able to transfer the funds electronically. This can take between seven and 10 days, according to Wells Fargo. If you're funding it via a personal check, it may take longer for the funds to clear and your card to be issued.
Not For Everyone
Secured cards are less risky for the issuer, but they can also be less profitable. Some issuers gear secured cards solely toward those looking to build a credit history rather than applicants who have poor credit and are looking to rebuild it. Others won't approve applicants too recently removed from a bankruptcy discharge or those with open collection accounts or current delinquencies. In addition, if you have a negative account history with a particular financial institution, such as a delinquent loan or checking account that's constantly overdrawn, it may not choose to expand its relationship with you via a secured card. Even if approved, you can expect to pay an annual fee and likely will face high interest rates if you carry a balance.