A secured card works just like a traditional credit card with one big difference: You have to pay a deposit in order to get one.
Secured cards are specifically on the market for people who have no credit history, poor credit history or a damaged credit score. They are often considered a surefire way to build credit. With deposits starting as low as $49 (for theCapital One Platinum Secured Credit Card), they are meant to be accessible.
However, that doesn't mean that it's guaranteed you'll be approved for a secured card. A card issuer can still deny your application if you don't meet the underwriting requirements.
Below, CNBC Selectreviews why you might not qualify for a secured credit card and what to do if you've recently been denied.
Can you be denied a secured credit card?
Usually, the biggest obstacle to getting a secured credit card is coming up with the refundable deposit that acts as collateral in case you don't pay your bill.
Most deposits are around $200, and if you want a higher credit limit, you'll need to deposit more money. The Platinum Secured Mastercard® from First Tech Federal Credit Union, for instance, allows cardmembers to deposit as much as $25,000 to receive an equivalent line of credit.
But even if you have the money for a deposit, you can be denied a secured card if your credit profile is deemed too risky to a lender. Each lender, or card issuer, has a set of standards as to what an ideal borrower looks like. This includes your credit score, your income and your current and former debts. If you have a long history of late or missing payments, delinquent accounts and/or bankruptcy, a prospective lender will have a harder time taking a chance that you'll be a reliable borrower.
In this case, the lender may say no and you'll need to rely on other means to build your credit history.
What to do if you don't qualify for a secured credit card
If you've been denied a secured credit card, the card issuer or lender should have sent you written notice explaining the reasons why you don't qualify. Read the letter thoroughly and call the issuer if you have any questions.
You should also comb through your credit report to make sure it's accurate. One in four Americans have an error on their credit report according to a2012 studyby the FTC. (Read more about how to dispute an error on your credit report.)
Next, consider other ways to build credit. These could include:
- Credit builder loans:These "loans" require that you make monthly deposits into a savings account before you can get your money. Doing so builds your credit scoreand establishes good habits, but you have to be careful as many charge extra fees.
- Become an authorized user:This option lets you "piggy-back" off of a friend or family member's good credit score by linking your credit report to theirs. You should only choose this option if both you and the primary cardholder are comfortable sharing financial responsibility, as your behaviors will have an impact on the other person's credit score.
- Report utility and rent payments:Use*Experian Boost™to report your on-time bill payments for rent and services like internet, cable, cell phone and utilities.
- Sign up for a free or paidcredit monitoring service:Monitoring your score keeps you up-to-date on what's happening behind the scenes as you build or improve your credit. CNBC Select recommends CreditWise® from Capital Oneas the best free service and IdentityForce®as the best paid service.
After taking the above steps, try applying for a new card in six months to a year. (Check out our list of best credit cards for building and improving credit.)
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Learn more:
- The beginner's guide to credit score: How to understand and improve your credit score
- Here's how being denied for a credit card impacts your credit score
- Howdoes your salary and income impactyour credit score?
*Results may vary. Some may not see improved scores or approval odds. Not all lenders use Experian credit files, and not all lenders use scores impacted by Experian Boost.
To learn more about IdentityForce®, visit their website.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
