It may seem surprising that your application for a credit card secured by putting your own money down could be denied. But it’s true—you can be denied for a credit card that requires a cash deposit, even if you’ve saved up several hundred to a few thousand dollars in sufficient collateral.
Secured credit cards work much like unsecured credit cards, except that the limit is set by a deposit you make to open one. They may be an option for people with no credit history, including newcomers to the U.S. They can also be a path for rebuilding credit for people with a poor credit history due to missed payments during an extended period of unemployment. Secured credit cards might also be helpful to people while they seek to resolve judgements and liens in the aftermath of a bankruptcy.
Please note that Chase does not offer secured credit cards.
Reasons why you might get denied for a secured credit card
The reasons why a secured credit card application may be denied can vary, but one top reason would be the inability of applicants to pay the required cash deposit. The following is a list of frequently encountered reasons for denial:
- Applying for too many credit cards over a few weeks or months and the consequent dings to your credit score from multiple hard inquiries on your credit report.
- Currently being unemployed or having insufficient income history from a new job that has only started in the last few weeks.
- A series of missed payments or defaults on previous credit cards and a bankruptcy filed in the past few months.
Know your rights under the Fair Debt Collections Practices Act
The good news is, if your application for a secured credit card is denied for any reason, you have the legal right to ask the card issuer to state their reason why. You also have the right under the Fair Debt Collection Practices Act (FDCPA) to a free copy of your credit report and the right to dispute items on the report you believe are unfair or false. Disputed items on your credit report can be reported through the websites of the three major credit bureaus--Experian™, TransUnion® and Equifax®.
How to qualify for a secured credit card after getting denied for one
Another option for applicants who are initially denied a secured credit card is to try to obtain a secured credit card from the same bank where you have a checking or savings account. You can also go back to the issuer who originally denied you if your credit score improves—in that case, it is generally recommended to wait three to six months before applying again. There are a few other options, some of which are listed below.
What is a no-credit-check secured card?
You can apply for a no-credit-check secured card, which as the name implies does not report your application as an inquiry to the major credit bureaus. But with positive payment history on the card may get reported to the major credit bureaus, potentially raising your credit.
What are share-secured loans?
If you keep deposits at a credit union they may offer share-secured loans, which work similarly to a secured credit card, in that you put down a deposit, then borrow against it. Once you’ve paid off your share-secured loan in full, the money you deposited is released back to you, and the paid-off debt can have a positive impact on your credit score
Other options – finding co-signers or low credit loans
- One alternative to applying for a secured credit card would be a relative or spouse with a better credit score who is willing to be a co-signer on your new credit card application.
- You can also apply for a secured credit card from a company that specializes in borrowers with damaged or poor credit, but these cards often come with high fees or a higher interest rate.
- You can also try to obtain a personal loan from a lender who specializes in low credit borrowers, but the terms may not be favorable. In general, the more your credit score improves, the better you may find the loan terms.
Closing Thoughts
If you are rejected for a secured credit card, the first thing to understand is that this decision is neither final, nor is it a personal judgement about your life story.
For the moment, recognize that this is a credit card issuer’s decision based on their view of your credit file. Rather than getting down on yourself, instead focus on what you can proactively control--which is improving your credit history moving forward. For example, you can view your credit score at Chase Credit Journey®, and then request a copy of your credit report from Experian. This is up-to-date, detailed information can empower you to start keeping track of your credit health and if necessary, dispute inaccurate items to have them removed from your credit file.
As long as you have a consistent stream of income to pay your bills, you may have the ability to demonstrate financial responsibility and important creditworthiness by making on-time payments. If you are patient and willing to try alternatives, you may be able to find a credit card issuer who will accept your application for a secured credit card. Chase does not offer secured credit cards, but responsible use of a secured credit card can lead to offers for unsecured credit cards in the future.
