If you have low credit or a thin credit history, it might be tricky to get approved for a credit card. Secured credit cards, which require you to submit a deposit to get authorized, offer a solution to this dilemma. The deposit on a secured card works by providing collateral for your credit card account, reducing the card issuer’s financial risk so it’s more ready to grant you a credit card.
In this guide, we review What Is Security Deposit For Credit Card, how do payments work on a secured credit card, credit card security deposit refund, and what is the minimum deposit for a secured credit card.
What Is Security Deposit For Credit Card
What Is a Security Deposit for a Credit Card?
A security deposit is a refundable deposit that serves as collateral for the secured credit card. The credit card provider maintains the deposit and only spends it if you default on your credit card debt. It’s crucial to note that you can’t use your security deposit to pay your monthly credit card bill.
Generally, your security deposit is equal to your credit limit. The credit card issuer may boost your credit limit after a specific time if you make on-time payments or offer an additional security deposit. Read the particular terms of the credit card you’re applying for to find out how and when you can increase your credit limit.
If you use your secured credit card responsibly, the card issuer may offer to convert it to an unsecured credit card and reimburse your security deposit. Not all secured card issuers provide an unsecured option, so verify the terms of the credit card you’re applying for if you’re interested in this feature.
How to Make a Deposit on a Secured Credit Card
Making your security deposit is usually the last step in the secured credit card application process. You’ll fill out an application online, supply personal information such as your Social Security number and financial information such as your monthly income, and pick how high you want your credit limit to be. Typically, secured credit cards let you select a credit limit ranging from $200 to $2,000; some cards give predefined amounts (such as $250, $500 or $1,000) for you to choose from.
Once you decide the credit limit you desire, you’ll submit a deposit for that amount (and pay any application costs, processing fees or other fees the card issuer imposes) via electronic transfer or debit. Before you start filling out your online application, be sure you have enough money available to transfer at the end of the procedure.
Because you submit your deposit as part of the application procedure, you’ll often be authorized instantly. Your secured credit card will then be shipped to you; as soon as you receive and activate it, you can start using it straight away.
Are you apprehensive about putting down a deposit online without having a credit card in hand? Some secured credit card issuers allow you apply online and wait to make your security deposit once you’ve been authorized and got your credit card. Once you make the security deposit, the card will be activated and ready to use. Keep in mind that if you don’t make the security deposit within a specified time period set by the card issuer, your card authorisation will be withdrawn.
When Do You Get Your Secured Credit Card Deposit Back?
It’s nice to know that your secured credit card deposit is refundable. But just when will you get the money back? In most situations, your security deposit will be repaid once your account balance is paid off and the account is terminated, or when your secured credit card is converted to an unsecured credit card. Review the card’s terms and conditions for the issuer’s regulations concerning when you can get your deposit refunded.
Even if you don’t plan to use your secured credit card anymore, there may be excellent reason not to close the account. Closing a credit card account could boost your credit utilization ratio, the amount of available credit you’re using, which can harm your credit score.
Instead of closing the card, ask if you can migrate to an unsecured card with the same credit card issuer. For instance, some issuers will automatically offer you an unsecured credit card once you’ve made on-time payments on your secured card for 12 months. Others demand you to seek an unsecured card. Once you’ve switched to an unsecured card, the card issuer will reimburse your security deposit, less any outstanding costs.
How to Get a Credit Card Without a Security Deposit
If you want to avoid putting down a security deposit, consider working on boosting your credit ratings so you can qualify for an unsecured credit card. Secured credit cards might help by offering you the chance to prove you can utilize credit responsibly.
Before you apply for a secured credit card, make sure the card issuer will record your payment history to the credit reporting agencies. Once you have a secured credit card, attempt to increase your credit score by utilizing the card to make minor purchases every month and paying them off in whole and on time. Going forward, focus on paying all of your payments on time—this is the single biggest aspect that might help you get a decent credit score. Setting up automatic payments might assist ensure you never miss a due date.
If you have any outstanding late payments, bring them current as soon as possible. And reduce off credit card debt to guarantee your credit utilization percentage remains below 30%. To calculate your utilization ratio, divide your entire credit card balances by your total credit limits.
Check your credit report to make sure all the information there is correct, and dispute any items you believe to be inaccurate. You’re entitled to a free credit report from each of the major credit bureaus (Experian, TransUnion and Equifax) every 12 months at AnnualCreditReport.com; you can also check your Experian credit report for free every 30 days. Also consider getting your FICO® Score☉ for free from Experian to see how your efforts are paying off.
Finally, if you pay phone and utility bills, using Experian Boost®ø may also help increase your credit score. This free service uses your utility, phone and other telecom bill payments to help improve your FICO® Score.
A Deposit on Your Future
Putting down a deposit on a secured credit card may be painful, especially since you can’t use that deposit to pay your credit card bills. But keep in mind that you can get your deposit back once you close your account or convert it to an unsecured credit card. Ultimately, the deposit on a secured card is a small investment in building a good credit score, a robust credit history and a better financial future—and you can’t put a price on that.
how do payments work on a secured credit card
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If you have bad credit or a skimpy credit history, it can be tough to get approved for a credit card. Secured credit cards, which require you to make a deposit to get approved, offer a solution to this problem. The deposit on a secured card works by providing collateral for your credit card account, reducing the card issuer’s financial risk so it’s more willing to issue you a credit card.
What Is a Security Deposit for a Credit Card?
A security deposit is a refundable deposit that serves as collateral for the secured credit card. The credit card issuer holds the deposit and only uses it if you default on your credit card balance. It’s important to understand that you can’t use your security deposit to pay your monthly credit card bill.
Generally, your security deposit is equal to your credit limit. The credit card issuer may increase your credit limit after a certain time if you make on-time payments or provide an additional security deposit. Read the specific terms of the credit card you’re applying for to find out how and when you can increase your credit limit.
If you use your secured credit card responsibly, the card issuer may offer to convert it to an unsecured credit card and refund your security deposit. Not all secured card issuers offer an unsecured option, so check the terms of the credit card you’re applying for if you’re interested in this feature.
How to Make a Deposit on a Secured Credit Card
Making your security deposit is usually the last step in the secured credit card application process. You’ll fill out an application online, provide personal information such as your Social Security number and financial information such as your monthly income, and decide how high you want your credit limit to be. Typically, secured credit cards let you select a credit limit ranging from $200 to $2,000; some cards offer set amounts (such as $250, $500 or $1,000) for you to choose from.
Once you select the credit limit you want, you’ll make a deposit for that amount (and pay any application fees, processing fees or other fees the card issuer charges) via electronic transfer or debit. Before you start filling out your online application, make sure you have enough money available to transfer at the end of the process.
Because you submit your deposit as part of the application process, you’ll typically be approved immediately. Your secured credit card will then be mailed to you; as soon as you receive and activate it, you can start using it right away.
Are you nervous about putting down a deposit online without having a credit card in hand? Some secured credit card issuers let you apply online and wait to make your security deposit once you’ve been approved and receive your credit card. Once you make the security deposit, the card will be activated and ready to use. Keep in mind that if you don’t make the security deposit within a certain time period set by the card issuer, your card approval will be withdrawn.
When Do You Get Your Secured Credit Card Deposit Back?
It’s reassuring to know that your secured credit card deposit is refundable. But exactly when will you get the money back? In most cases, your security deposit will be refunded once your account balance is paid off and the account is closed, or when your secured credit card is converted to an unsecured credit card. Review the card’s terms and conditions for the issuer’s rules about when you can get your deposit back.
Even if you don’t plan to use your secured credit card anymore, there may be good reason not to close the account. Closing a credit card account could increase your credit utilization ratio, the amount of available credit you’re using, which can hurt your credit score.
Instead of closing the card, see if you can transition to an unsecured card with the same credit card issuer. For instance, some issuers will automatically offer you an unsecured credit card after you’ve made on-time payments on your secured card for 12 months. Others require you to request an unsecured card. Once you’ve transitioned to an unsecured card, the card issuer will refund your security deposit, minus any outstanding fees.
How to Get a Credit Card Without a Security Deposit
If you want to avoid putting down a security deposit, consider working on improving your credit scores so you can qualify for an unsecured credit card. Secured credit cards can help by giving you the chance to prove you can use credit responsibly.
Before you apply for a secured credit card, make sure the card issuer will report your payment history to the credit reporting agencies. Once you get a secured credit card, work to improve your credit score by using the card to make small purchases every month and paying them off in full and on time. Going forward, focus on paying all of your bills on time—this is the single biggest factor that can help you attain a good credit score. Setting up automatic payments can help ensure you never miss a due date.
If you have any outstanding late payments, bring them current as soon as possible. And pay down credit card debt to ensure your credit utilization ratio remains below 30%. To calculate your utilization ratio, divide your total credit card balances by your total credit limits.
Check your credit report to make sure all the information there is correct, and dispute any items you believe to be inaccurate. You’re entitled to a free credit report from each of the major credit bureaus (Experian, TransUnion and Equifax) every 12 months at AnnualCreditReport.com; you can also check your Experian credit report for free every 30 days. Also consider getting your FICO® Score☉ for free from Experian to see how your efforts are paying off.
Finally, if you pay phone and utility bills, using Experian Boost®ø may also help increase your credit score. This free service uses your utility, phone and other telecom bill payments to help improve your FICO® Score.
A Deposit on Your Future
Putting down a deposit on a secured credit card may be painful, especially since you can’t use that deposit to pay your credit card bills. But keep in mind that you can get your deposit back once you close your account or convert it to an unsecured credit card. Ultimately, the deposit on a secured card is a small investment in building a good credit score, a robust credit history and a better financial future—and you can’t put a price on that.
Learn More About Secured Credit Cards
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credit card security deposit refund
There are plenty of credit card options out there. But not all of them are available if you don’t have an established credit history—or if your credit is less than perfect. There are still options, though. One could be a secured credit card.
Secured credit cards can be a great tool to help you build good credit. But before applying, it may help to learn a little about how secured cards work. Keep reading to learn more about what it takes to get a secured card, how it’s different from other cards and a few potential benefits.
What Is a Secured Credit Card?
When a credit card is “secured,” it means money must be deposited with the credit card issuer in order to open an account. That money is known as a security deposit. And it’s held by the credit card issuer while the account is open, similar to the security deposit given to a landlord to rent an apartment.
A secured credit card can be a great option for people who are establishing, building or rebuilding their credit. And building credit through responsible use can make you a better candidate for things like mortgages, car loans and other credit cards.
How Do Secured Credit Cards Work?
Secured cards work differently depending on which credit card company issues them. But here’s how getting and using a secured card could work if you decide one’s right for you:
1. Applying for a Secured Card
As with any credit card, getting approved for a secured card isn’t 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 you’re pre-approved for a Capital One card. It’s quick and secure—and checking won’t 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.
On the other hand, some cards—like the Capital One Platinum Secured card—might provide a credit limit that’s higher than the amount of the security deposit. For example, a $200 credit limit might only require a $99 security deposit.
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
Once you’ve been approved for a secured credit card and made your deposit, you can use the card to make purchases in person or online—just like a traditional, unsecured credit card. Many secured cards look like traditional cards. So chances are no one but you will know you’re using a secured card.
Part of using a secured card is keeping track of spending and paying your statement on time every month. Reading up on how statement balances and payment options work can help prepare you to keep up with your monthly bills.
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.
Capital One refunds security deposits in two ways: You can earn back your deposit as a statement credit by using your card responsibly. Or it will be refunded when you close your account and pay your balance in full.
Potential Benefits of Secured Credit Cards
There are plenty of advantages to using secured cards: A secured card can give you experience using a credit card, help you improve your credit profile and help you work toward a card with better rewards or a higher credit limit.
It may help to think of a secured card like on-the-job training you can use to move on to bigger and better opportunities.
Use a Secured Card to Build Credit
If you’re looking to build or rebuild your credit, you can use a secured card to help yourself build a successful track record. That means doing things like paying at least the minimum payment on time each month and using your card responsibly.
Keep in mind that missed or late payments could harm your credit. And so could exceeding your credit limit.
Another fact to consider: Some issuers may not report the status of secured cards. If better credit is your goal, look for a secured card that reports to at least one of the three major credit bureaus: Experian®, Equifax® and TransUnion®.
Secured Cards Can Help You Graduate to Traditional, Unsecured Cards
There’s no single right time to move from a secured card to an unsecured card. When and why you decide to apply for a traditional credit card will depend on your situation and goals.
But some credit card companies may allow you to move seamlessly from a secured card to a traditional card without closing your original line of credit. The process may even involve returning your deposit.
Check with your credit card company to understand what’s possible and how your account will be treated if you transition to a traditional card. And be sure to understand how closing your secured card account could affect your credit.
Secured Cards vs. Unsecured Credit Cards, Debit Cards and Prepaid Cards
When you pay for something, secured cards and other cards may seem the same. But there are some differences worth noting.
what is the minimum deposit for a secured credit card
Secured cards are one of the best options for credit newbies or people with less than stellar credit. Here’s how secured cards work, the credit requirements to get one and how to transition to an unsecured card.
If you’re looking to build or rebuild credit, there are a number of credit cards on the market that are designed for that purpose. Secured cards are one of the best options for credit newbies or people with less than stellar credit.
You can use a secured card just like a traditional (aka unsecured) credit card to help you establish good credit, as long as you practice responsible credit behavior.
Below, Select outlines how secured credit cards work, the credit requirements to get one and how to transition to an unsecured card.
A secured card is nearly identical to an unsecured card in that you receive a credit limit, can incur interest charges and may even earn rewards. The main difference is you’re required to make a deposit (known as a security deposit) in order to receive a line of credit. The amount you deposit usually becomes your credit limit.
Deposits typically start at $200 and can range to upwards of $2,500. If you make a $200 security deposit, you’ll receive a $200 credit limit. If you want a bigger credit limit, you’ll need to deposit more money.
The amount you deposit acts as collateral if you default on payments, but it’s completely refundable in one of two ways: Pay off your balance in full and close your account, or upgrade to an unsecured card.
Secured cards offer many of the same benefits as traditional credit cards, but they are typically easier to qualify for if your credit history is poor or non-existent.
The one big difference, in addition to the required security deposit, is the interest rate. Secured cards usually offer all users one variable interest rate, say 24.99%, for example. Meanwhile, an unsecured card often features a range, say 13.99% to 24.99%. In most cases, the better your credit score the lower APR you’ll receive. Since secured cards often only have one, relatively high APR, it’s extremely important you always pay on time and in full to avoid interest charges.
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.
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 (more on that below) 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 (2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, then 1%, and unlimited 1% cash back on all other purchases automatically), 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 Platinum Secured Credit Card. If you qualify for the low $49 or $99 deposits, you’ll still receive a $200 credit limit.
While a secured card is a great way to build credit, it’s not an ideal long-term option since you have to deposit money to receive a credit limit. Eventually, you’ll need an unsecured card that provides a bigger credit limit without a deposit.
The transition from secured card to unsecured card varies by card issuer. Some card issuers may perform periodic account reviews to evaluate whether you can be switched to an unsecured card. For the Discover it® Secured Credit Card, starting at seven months from account opening, Discover will automatically review your credit card account to see if they can transition you to an unsecured line of credit and return your deposit.
If your card issuer doesn’t offer an automatic upgrade process, you can simply call the number on the back of your card and ask to be transitioned to an unsecured card. They may transition you to a similar card that doesn’t require a security deposit. Be aware that a credit check may be performed.
Some card issuers may not offer a transition process, so that means you’ll have to apply for an unsecured card and close your secured card account. Experts generally don’t recommend closing credit cards, but secured cards are a bit different since you’re required to put up collateral.
Before you close a secured card, make sure you apply for a new card and are approved. If you close your card before opening a new one, it may be more difficult to be approved.
Information about the Capital One Platinum Secured Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.