Secured credit cards 101.
Getting rejected for a credit card can be demoralizing – especially when you need to build credit to get credit.
And though it can feel like almost everyone has a credit card, the truth is that lots of people don’t get approved for a traditional card. Maybe they’re just starting out with credit, new to Canada or have had financial difficulty in the past and need to rebuild their credit score. In that case, applying for a secured credit card might be the best option.
A secured credit card is just like an unsecured card, except secured cards require a certain amount of money, called security funds, upfront. This money acts as a security deposit, and you get it back if you ever decide to close your account, once your balance is paid in full.
Let’s take a closer look at how a secured credit card works.
Do my security funds equal my credit limit?
Sometimes, the credit limit on a secured credit card will be the same amount as the security funds you submitted. For example, you might submit $300 in security funds in exchange for a credit card with a $300 credit limit. Some secured cards, such as the Capital One Guaranteed Secured Mastercard®, allow you to increase your credit limit up to a certain amount by submitting more security funds.
Other times, your credit limit might not equal the amount of security funds you put up. But if you’re comparing secured and unsecured cards, there’s no contest: an unsecured card usually has a much higher maximum credit limit.
Will a secured credit card raise my credit score?
One of the best reasons to use a secured card is the positive impact it can have on your credit score when used responsibly. For example, making your monthly payments on time could help improve your credit score, especially when you’re hitting the deadline month after month after month. This is different from a prepaid card, which doesn’t share your activity with credit reporting agencies and therefore doesn’t help you build your credit.
While unsecured and secured cards are equally valuable for building credit, a secured card can set you up to qualify for an unsecured card down the line when used responsibly.
Do secured credit cards have fees?
It’s a common misconception that when you’ve paid security funds, you won’t pay any additional credit card fees. Actually, a secured card will likely have a similar annual fee and interest rate structure to some unsecured cards.
Is it easier to get approved for a secured card?
You betcha. A secured credit card is a good option for someone who has poor-to-fair credit, or no credit at all, and therefore doesn’t qualify for an unsecured card.
Tip: You can check your credit score for free with our online tool Credit Keeper®1.
Can I graduate from a secured card to an unsecured card?
Yes! That’s ultimately the goal when you have a secured card. If you improve your credit score by using your card responsibly, you should be able to qualify for an unsecured card.
If you ever choose to close your account, your security funds are returned to you, so long as you’ve paid off your balance. A lot of unsecured cards offer additional perks, such as rewards and travel insurance, that make them more enticing.
Now that you know a bit more about the difference between a secured and an unsecured credit card, you can find out which card you’ll be approved for with Quick Check®. It’s fast, free and you don’t have to be a Capital One customer to use it.
Best credit score ever
Build your credit with these tips.
• Pay your bill before your monthly due date
Can’t pay the whole thing? Making at least your minimum monthly payment will help protect your credit score.
• Andddddddd repeat!
When you have a history of paying on time, it tells a good credit story.
• Don’t go over your credit limit
Actually, don’t even get close. Credit bureaus look at your credit utilization rate – as in, how much of your credit you’re using out of all the credit you have access to. If you’re using a low percentage of your credit, that’s a win for your credit score. You can always set up a Capital One Alert to let you know when you’re getting close to your limit.
• Diversify your credit products
Successfully showing you can manage multiple credit products “thickens” your credit file, and builds your credit score in the process. It also helps to have different types of credit, such as both a line of credit and a credit card.
1 The credit score and report information by Credit Keeper is intended for educational purposes only. Lenders and other commercial users may use a different type of credit score and other information when making credit decisions.
Credit Keeper is a service offered by Capital One and is powered by credit information provided by TransUnion. Availability may vary depending on our ability to verify your identity and obtain your information from TransUnion. Credit Keeper is also currently unavailable to Quebec residents.
TransUnion and associated names and logos are trademarks of TransUnion, LLC or an affiliate.
* If Quick Check pre-approves a card, you can be 100% sure we’ll approve your application as long as:
a. There’s been no change in your credit file information, personal information or financial status from the time you receive your Quick Check results to the time you apply for one of our credit cards;
b. You’re at least the age of majority in the province or territory you live in;
c. Your application isn’t flagged for fraud prevention;
d. You don’t have an existing Capital One account; and
e. You haven’t applied for a Capital One account in the last 30 days or had an account with us that was not in good standing in the last year. In good standing means not past due, over limit, fraudulent, restricted, or part of a consumer credit counselling program or bankruptcy.
In some cases, we may not be able to open an account for you even though your application was approved. This can happen if we’re unable to verify your identity, or you don’t provide the required security funds if you’re approved for a Secured Mastercard®.