Your Secured Credit Card Explained
Do you have a poor credit history?
Or do you not have a credit score at all?
If you answered ‘yes’ to either question, then how are you supposed to demonstrate that you can use a credit card responsibly?
Without any credit history, potential creditors have nothing to judge your financial activities.
In other words, how are they going to trust you with their borrowed money?
This is where having a secured credit card can help.
It’s a stepping stone to help build your credit history.
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Secured credit cards are not regular credit cards.
A typical credit card has a spending limit.
This means you can make purchases up to a pre-set limit before you’re expected to pay the bill.
With a secured credit card, you have to put up a deposit up-front showing your guarantee to pay it back.
The credit limit on this type of card is matched by your deposit amount.
After a period of time, your deposit will be returned.
If you want to obtain this type of credit card, you’re likely going to have lots of secured credit card questions.
Listed below, are some secured credit card FAQ:
- What are secured credit cards?
This is a product where you’re expected to put up a security deposit that matches your credit limit. A secured credit card can be used like a regular credit card. The only difference is that your money will be placed in an interest-bearing account. This interest is paid annually. Keep in mind, this is not a prepaid credit card. You will be expected to make monthly payments that will total above the security deposit.
- Why do you need a secured credit card?
This type of credit card enables you to rebuild or build a sound credit rating. If you’re going to purchase your first home, or need to borrow money to buy a car, the lending institution will look at your credit rating and history. Most consumers are rejected by banks for borrowed credit because of a lack of credit history or poor repayment habits.
Possessing a credit card is no longer a luxury; rather a necessity. There are many advantages to having a secured credit such as:
– Making purchases over the phone or online
– Booking a rental car or flight, etc.
- How will getting a secured credit card help be rebuild or build my credit history?
The lender will report your particular file to the respective credit bureau. This is done every month. Your file is periodically updated and this where the credit building or re-building starts.
- Are there minimum and maximum credit limits? If so, what are these limits?
Yes, there are the minimum and maximum credit limits. These are determined by the lender. The minimum limit is usually $1,000 and can go up to $10,000 or more.
- Who is eligible for a secured credit card?
Most people are eligible. This depends on the lender’s approval process. The typical approval rate is 95%. All applicants must have a regular source of income.
- Who is not eligible for a secured credit card?
If you are currently in bankruptcy, you won’t qualify.
- How can you apply for a secured credit card?
You will have to complete the relevant application form. Sign it and send it to the lender along with the security deposit. Most lenders will not process your application without a deposit amount.
- What will happen if my application is declined?
In case your application is rejected, the lender will return your deposit. Please note: if you paid by cheque, it will not be cashed unless your application is approved.
- How do you send in the deposit amount?
You may send in a money order, cheque or bank draft along with the completed application form to the lender’s address.
- Can applications be faxed in?
No. Application will not be accepted by fax.
- What happens if you don’t have a chequing account?
Most lenders accept cheques issued by a third party. Funds may also be sent in via Western Union.
- What is the waiting period to obtain a secured credit card?
The time period to process your application may take up to three weeks. The waiting period begins from the moment your application and deposit are accepted. Security deposits sent in through guaranteed funds such as bank drafts, certified cheques, money orders or payment from Western Union are processed faster. They require one week less. The waiting period is longer with a personal cheque. This is because they have to be cleared by your respective bank.
- Do I need to be a Canadian resident to obtain a secured credit card?
This type of credit is available to all Canadian residents. It is exempt for Quebec residents.
- Is there any way I can speed up the application process?
There is no method to speed up the application process. By sending in a complete application with the security deposit will help. Sending in guaranteed funds will also help to speed up the process by up to a week.
If the following scenarios are applicable to you, you may have to submit additional documentation with your application which will ensure that the process is not delayed:
– If you don’t have any credit history or you have recently moved, especially since the last credit or loan request, please send in a photocopy of a bill or driver’s license with the updated address.
– If you were recently released from bankruptcy, then include the certificate of release as well.
– If you want your card to be “rush delivered”, then it will be sent via a courier for an additional fee of $39. This will not affect the lender’s approval process.
- When will your deposit be returned?
Your deposit will be held by the lender for as long as you keep an account with them. When your account is closed, the deposit amount will be returned along with the acquired interest, pending clearance of all the fees and purchases.
- How may I increase my secured credit limit?
You may opt to increase your spend limit on your secured credit card by submitting additional funds to the lender. You also need to clearly indicate that you want to increase your credit line. Submitting an overpayment will not increase your credit line.
- Do I have to pay an annual fee?
Most lenders will levy a one-time set-up fee and a monthly fee. The one-time set-up fees will show up on your first statement. The monthly fees are levied on regular bills. If you would like a second card, additional fees are applicable.
- What is the interest rate on a secured credit card?
This is the most common secured credit card questions. Most lenders have an interest rate between 17% to 21%. The interest rate may be higher on cash advances and purchases. There will be interest charged if you pay the complete balance before the statement due date. For a cash advance, the interest is applied from the moment the advance is issued until the time it’s paid entirely.
- Do you have to pay the entire balance every month?
You are required to make at least the minimum payment amount every month. The amount is indicated on the statement. You cannot use the security deposit to make your payments.
- How can I make my payments?
This is another frequently asked secured credit card questions. Payments can be made at any Canadian bank or financial institution. You can pay via telephone banking, online, or in-person at the branch. You may also mail in your money order or cheque directly to the lender. The envelope will be provided for you with the statement.
- What happens if there is an outstanding judgment against you?
If there is an outstanding judgment, you are still eligible for a secured credit card. However, you will have to send in third party funds. You must also submit documentation that confirms you are sending in funds to the lender which are not yours.
- Are secured credit cards available everywhere?
Secured credit cards are available in all provinces and territories except for Quebec.
- How old must I be to apply for a secured credit card?
You must meet the age of majority in the province or territory where you live to be eligible for this type of credit card. The age of majority in Alberta, Ontario, Manitoba, Saskatchewan, and Prince Edward Island is 18 years. In the rest of the provinces and territories, the age is 19.
- How much money can I use?
You may use your secured credit card to spend up to the limit set by your lender. You can also use this card for cash advances through a bank or ATM. An important point to note about this secured credit card FAQ is that it’s a revolving line of credit. You are borrowing against the card and repaying it regularly. The amount available to use depends on your outstanding balance.
- If I have a mortgage with the lender, do I still need to complete an application?
Even if you are an existing customer with a particular lender, you will be required to send in an additional application for a secured credit card along with the security deposit.
If you are unable to find the answers to your secured credit card questions, do get in touch with us.
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