What is a Secured Credit Card?

Though it has only been more than two years since I have acquired my first ever credit card, I've noticed lately that some people from work approach me asking for tips on how to avail of one. Being from a BPO company, I'm very much familiar on how hard it is to apply for one especially if you  have less than 2 years of tenure on your company or your salary doesn't meet the minimum requirements. I've had my share of rejection and one thing that I'm sure of is it's easier when starting with a secured credit card.  With this, here are some things I knew about secured credit cards.

What's a secured credit card?

A secured credit card is just like a regular credit card, but the main difference is that you're required to make a deposit which will be held against its credit limit. Your credit limit will usually be a percentage of your security deposit usually 80-90% or it may be the same as your deposit. Many banks place your deposit into a savings account where it stays until you close your account, upgrade to a regular credit card or default on your credit card balance which in this case, it would be used to pay for the unpaid balance. A secured credit card is often recommended for those who are constantly being declined a regular credit card, those who haven't yet established a  good credit or financil history or those who have damaged credit.

Secured credit cards vs. regular credit cards

Aside from the held deposit, secured credit cards are like most other types of credit cards. Every swipe that you make on a secured credit card reduce your available credit and you're required to make at least a monthly minimum payment toward your credit card balance. If your card issuer has a grace period, you can avoid paying finance charges by paying your balance in full before your next statement. Late payments and over-the-limit transactions are penalized with a fee just like any regular credit cards.

Even though your credit limit is secured, you're still required to make at least minimum payments on your balance every month. Not doing so may taint your credit score, and if you default from paying by at least three months depending on the card issuer, your account will be closed and your held deposit will cover the unpaid balance.

Why start with a secured credit card? 
Regular credit cards have stricter credit qualifications like a minimum tenure in a company or a minimim gross monthly or annual salary which make it hard for most to be approved for these cards. Personally, I know few people who have trouble getting approved for regular credit card that they have settled for a secured one.  for a secured credit card much easier than a regular credit card. After a few months of  proving that they are financially responsible, the regular credit card came in succesion, even without them applying for it.

Converting to Regular Credit Card
Most card issuers review your account after a certain amount of time, most likely 12 months at the time you will be charged an annual fee. Of the 4 banks who offer secured credit cards (BPI, RCBC, AUB and Security Bank) though I also heard that Metrobank, Eastwest and BDO offer their clients a version of their secured card, and based on my personal experience, only BPI allows conversion without reapplying. Even if your secured credit card issuer doesn't upgrade you to an regular credit card, you may qualify for one with another credit card issuer after six to twelve months if your secured credit card has reported your credit history to one of the major credit bureaus.

On my next post, I will try to consolidate my experience with 2 of the three secured credit card issuers.  Will do.

Cheers!