Secured credit cards require a security deposit equivalent to the maximum limit on the card, but regular on-time payments could earn your lender enough trust that they upgrade you to an unsecured card or close out your account and return your deposit.
Credit experts advise using a secured credit card responsibly in order to build or restore your credit score. By keeping an open account with on-time payments, an unsecured card could become available within a year or so.
Secured Credit Cards Without a Bank Account
For the 4.5 percent of American households that remain unbanked, secured credit cards could be an attractive solution. You’ll typically be required to provide a refundable security deposit – usually at least $200 – which serves as your credit limit and allows for potential increases over time; some cards allow users to increase both amounts over time while other only permit you to regain it when closing or upgrading to an unsecured card.
Secured credit cards tend to have more flexible approval criteria, making them accessible for high-risk borrowers or those without credit histories. Furthermore, secured cards report your payment activity directly to major credit bureaus, potentially helping boost your scores if you use your balance wisely and pay on time.
However, being secured by cash deposits often comes with high fees and interest rates. Furthermore, their credit limits depend on your security deposit; that could limit what purchases can be made using them.
To avoid this situation, some lenders that issue secured credit cards evaluate applicants using alternative data instead of conducting traditional credit checks. This may include your banking history, buy now pay later history or record of utility, rent and subscription services payments – although such cards tend to be rare and come with stringent terms and conditions.
Prepaid debit cards function similar to regular credit cards, but do not report to major credit bureaus and can only be used at participating retailers. They’re not ideal for building or rebuilding credit as they won’t help establish positive repayment history or increase utilization which make up 30% of overall score calculation.
If you need assistance selecting a credit card that’s best suited to you, taking a free NerdWallet credit card score and personalized recommendations test can provide answers. Plus, our Credit Card FAQs provides additional resources.
Money Orders
Money orders offer an easy, hassle-free payment method without the need for bank accounts or account holders to have one. They’re widely available at retailers including supermarkets, convenience stores and post offices.
Money orders can be found in banks and credit unions as well as through some online providers. When buying one, you’ll need the name, address, telephone number and signature of the person receiving it along with any pertinent memo notes to document why this payment is being made.
Money orders offer many advantages, yet other forms of payment may be better for certain purposes. Cash payments may be less secure due to being stolen by third parties, making money orders the safer alternative when mailing cash payments.
Money orders don’t report account activity to credit bureaus; while secured cards can help rebuild or establish your credit and typically report monthly account activity to these bureaus. By making responsible purchases and repaying any balances on time, this can help your score improve over time.
Secured cards require you to put down collateral equal to the credit limit you require as collateral, with on-time payments and maintaining a low credit utilization ratio (the ratio between your balance and total available credit limit). Once established, these secured cards can transition over to unsecure ones.
Secured cards operate similarly to regular credit cards. Once again, however, an application must be made and a financial institution will check your credit before accepting or rejecting it – hard inquires could temporarily decrease your score but in most cases your security deposit should be returned upon cancellation or closure of account. Please be aware that deposit requirements and credit limits vary between institutions so it is wise to conduct thorough research prior to applying.
Prepaid Debit Cards
Consumers with no bank account can find several credit card options to meet their purchasing power and can be reloaded using cash or money orders. Secured credit cards may also be easier to qualify for than traditional ones due to requiring only a refundable security deposit which also serves as the credit limit – reporting monthly payment information to all three main bureaus can help build or repair poor or nonexistent credit histories.
Prepaid cards can be useful in helping avoid overdraft fees and rebuild credit, or giving children limited spending power. It’s important to remember, though, that these cards don’t provide the same advantages of regular credit cards such as rewards programs or interest accrual on outstanding balances.
Secured credit cards offer consumers without bank accounts an ideal solution, offering the same purchasing power and credit-building potential of debit cards while improving a score. To obtain one, an initial deposit will usually equal its credit limit; then card issuer will report payments made on time to three major credit bureaus allowing consumers to build or increase their score over time.
For people without bank accounts, the ideal secured credit cards are those without annual fees that allow users to reap credit card rewards. Such cards may belong to Visa, MasterCard or American Express networks and can be used anywhere they are accepted – for instance the Chime Secured Credit Card requires $200 as deposit but offers 2% cash back at restaurants and gas stations!
Before applying for a secured credit card, make sure that its terms and conditions have been thoroughly read over. Your card issuer may run a credit check that could result in rejection, approval with lower limits, or increased initial security deposits – in case of rejection, additional funds may need to be added as collateral deposits before reapplying for another card.
Secured Credit Cards With No Bank Account
Secured credit cards offer a reliable solution for people seeking to establish or rebuild their credit. Typically, these cards require a refundable cash deposit upon application and have more lenient approval requirements than traditional unsecured cards – ideal for borrowers with low or no credit scores and an insufficient history. Secured cards encourage responsible borrowing practices which over time improve your score allowing access to loans, mortgages and other lines of credit.
Secured credit cards differ from prepaid credit cards in that they report directly to major credit bureaus, helping users establish or rebuild strong credit profiles. To get the most out of using a secured card responsibly and paying off the balance in full each month – doing this will allow you to avoid interest charges while keeping credit utilization rates (the ratio between outstanding balance and total available limit) low.
Some secured credit cards come equipped with rewards or additional features, while others don’t. When selecting a secured card it is also important to find one with no annual fee – these will prove more cost effective in the long run. In addition, some secured cards allow you to move your security deposit between accounts secured by their card, giving you greater spending control.
No matter where your credit currently stands, having a secured card that reports to the bureaus can be an effective way to build up or repair it over time. Payment history represents 35% of your score; by making timely payments you’ll create positive credit history that may eventually qualify you for an unsecured card with better terms in the future. Our Credit Card Marketplace and CardMatch provide personalized offers tailored specifically to you while CNBC Select provides monthly free Equifax credit report updates.