Turn a Secured Credit Card Rejection into an Approval

by Claire Tsosie

When Kyle Khachadurian found out that his application for a secured credit card had been denied, he felt crushed.

"In my head, I was doing everything right," says the 23-year-old from Queens, New York. "I had a big chunk of savings. . I did everything the way you're supposed to except for this." But as it turned out, an old collections account he had all but forgotten about stopped him from getting the card he wanted.

Secured credit cards are generally easier to qualify for because issuers require the applicant to post a security deposit, often similar to the card's limit, to cover losses if the cardholder defaults. But some credit card companies won't approve you for a secured card if you have an undischarged bankruptcy, too much debt or not enough income.

f you're caught off guard by a denial, here's how you can turn things around:

Find out what you can fix now

First, look at your application and make sure you filled it out correctly. If you were rejected because you made a mistake on the application, contact the issuer and ask for a reconsideration.

But if your damaged credit is holding you back from approval, focus on that. It can take two to five years to turn badly damaged credit into good credit, says Richard Rosso, a certified financial planner at Clarity Financial in Houston. For those contending with other traumatic events at the same time, such as a divorce, job loss or business failure, the process can be even more discouraging.

"It's kind of like moving a small glacier," Rosso says.

While your credit can't go from poor to excellent overnight, there are often steps you can take in the short term to improve your standing enough to qualify for a secured credit card.

Go to AnnualCreditReport.com to get free credit reports from each of the three major consumer credit bureaus -- you're entitled to one free copy from each bureau every 12 months -- and look for negative information. If any information in the reports is inaccurate, dispute each error separately, and provide any documentation that supports your claims.

If the negative information is accurate -- say, you have a large outstanding balance -- figure out how to tackle it. Dealing with collectors can be tedious, but by taking steps toward paying off old accounts, lenders might recognize that you're serious about getting your finances on track, and you may have a better chance of qualifying for credit.

Show lenders that you can pay on time

If you have credit reports or other records that prove you can pay punctually, Rosso says, it could help you gain access to credit. "Make sure you're reporting your good habits," he says. Here's how:

Get your payments on record. Talk to your landlord about the possibility of using an app, such as RentTrack, that reports your rent payments to the major credit bureaus. Depending on where you live, you may also be able to persuade your utility companies to report your on-time payments to the bureaus.

Consider PRBC. Rosso tells his clients who are rebuilding their low credit scores to sign up for the alternative credit scoring site PRBC, which is Pay Rent, Build Credit. From information you provide about your bank account, the timeliness of your utility and rent payments and other factors, PRBC will produce a score for you between 300 and 800, the higher the better.

Many lenders don't know about this alternative score, Rosso adds, so it might be up to you to explain what it means. In his experience, he's never seen someone use a PRBC score to get a mortgage. But some have used it successfully for auto loans or cell phone providers, he adds.

Get a loan. Some banks and most credit unions often offer share secured loans or credit builder loans to consumers with poor credit. With these kinds of loans, you borrow against your own savings or certificate of deposit and make payments over the course of a few years. Banks and credit unions report these payments to the credit bureaus, and it nudges up your score. If you can afford the deposit, this could be worth a try.

"It takes time," Rosso says of those rebuilding their credit. "But soon, the world of credit opens up to them, and everything's back to normal."

After two rejections -- one from an unsecured credit card and one from a secured card -- Khachadurian didn't want another hard pull on his credit that might end in a denial. So before reapplying, he started paying off his collections accounts from when he was 19, and his credit increased slightly.

It was worth the trouble. After filling out the secured card application again, he was approved. Shortly afterward, he got his new card with a limit of $300 and started using it to rebuild his credit. After just three weeks, he says, his credit scores shot up by about 100 points.

If you're not sure you'll qualify for a card, call the issuer's customer service to ask about any minimum requirements it might have. Certain issuers may still be unwilling to work with you, but that's OK -- look at offers from other banks who can help you, or consider alternatives to secured credit cards.

Getting rejected was discouraging, Khachadurian says, but he's glad he put the time into rebuilding his credit.

"I can tell you, when I got approved, I was over the moon," he says.

Why you should build your credit to get an Unsecured Credit Card

Why can't i get approved for a secured credit card

First, an unsecured credit card is a credit card that the bank doesn’t hold a collateral against it. Unlike it is for a mortgage or a loan on you car. It is the usual credit card that bank issues for regular customers.

That is the kind of card you want to be successful to get.

The interest rates are usually lower.

Because your credit rating is better, they don’t dont need a secured loan.

IF you have a bad credit score

If your credit score is too low to obtain an unsecured credit card, you will need to rebuild your credit profile. Ironically, you will need a loan or a credit card to do so. You need to demonstrate you can pay a loan back to improve your score.

To achieve that, you can build and improve your credit rating with:

  • a secured credit card and/or a credit card that you fill or replenish first,
  • using a prepaid credit card.

Then, using properly that kind of card, paying on time every time, will improve your credit rating. In time, with a better history to show you will be able to ask for an unsecured credit card.

Your objective: Improve your credit Score to get approved for an Unsecured Credit Card

FIRST – What is your current credit profile? Get your Credit Report.
  • You can check your credit report once a year for FREE! This is a Federal law.
  • You can also purchase your credit score from an agency.
  • You can ask your financial institution if they offer free credit score.

Find out what is your current credit score so that you know where you start from and that you can make the appropriate next step.

THIRD – If needed improve your Credit Score BEFORE asking for more credit.

If you are new to asking for a loan and your credit profile is weak, get a product designed to help you establish and build credit. Financial institutions have developed an array of products and services for that purpoose. They offer secured credit cards, prepaid credit cards and credit builder loans, etc.

Fourth – Make sure to pay in time all the time.

Making your credit payments on time is the biggest contributing factor to improving your credit scores.

  • Use the banks email or text message payment reminders of when a payment is due.
  • Enroll in an automatic payments through your credit card and loan providers.
  • Set your own reminder on your smart phone or PC calendar.

Fifth – Reduce the Amount of Debt You Owe.

Obviously, this is easier said than done. But if you work at reducing the amount that you owe you will improve your life, your credit score, credit rate and loan amount you can get. Even a very small improvement as little as 1% of your total debt, to start with, then 3% and later 5% will get you on a path of financial health. Even if that amount seems insignificant to you, it is a major improvement compare to going in the wrong direction. Come up with a payment plan that puts most of your available budget for debt payments towards the highest interest cards first.

Take note of the results you get each time you reach a milestone or you can measure your increased results. Find a way, an inexpensive way to reward yourself. It might be as simple as asking a trusted friend to congratulates you.

Improve Your Credit Series: Secured Credit Cards

One of the most effective ways to improve your credit is through a secured credit card. Below we’re going to take you through all the information you need to apply for, get approved and use a secured credit card to improve you credit score.

Before you can start improving your credit you need to apply for and get approved for a secured credit card, these types of cards are relatively easy to get but there are still a few steps you’ll need to follow.

  1. Find the right card for your financial situation. The first step you should take is finding out what your current credit score is, this will give you a better idea of which secured credit cards you should apply for. Depending on how high or how low your credit score is will affect what type of card you’ll be approved for. Knowing in advance what your score is will help you narrow down your choices and save you time.
  2. Shop around. Now that you know what your credit score is you can shop around for the best secured credit cards. Compare interest rates, grace periods, penalties and fine print. Choose the ones best suited for you and apply.
  3. Make your deposit. Secured credit cards require a deposit which acts as your collateral. Typically you can expect to pay a deposit of $200 to $500. This is why secured credit cards are generally speaking easier to get and great for building credit, your collateral lessens the risk for the credit card company.
  4. Spend responsibly within your limit. Now that you have your new secured credit card you should use it, this is how you’ll build your credit score. Just make sure you know what your limit is and spend responsibly. The point is to improve your credit, not make it worse.

Secured Credit Cards Are Great For…

Secured credit cards are a pretty great option for anyone, but there are definitely certain financial situations that would greatly benefit from the help of a secured credit card.

  • Those who need to stick to a budget. A secured credit card usually has a low limit so it’s perfect for those who need to stick to a strict budget.
  • First time credit card users. If you’ve never used a credit card before then a secured one is great way to help you get comfortable with using credit to purchase things.
  • Parents. Secured credit cards can be very helpful for parents who want to teach their children how to manage money with credit but don’t want to give them a credit card with a high limit and no collateral.
  • Living debt-free. If you’re trying to live debt free but know that you still need some type of credit history then a secured credit card is probably your best option.
  • Improving credit score. If you’ve had debt problems in the past and are trying to improve you credit score but don’t want a regular credit card or can’t get approved for one then a secured credit card might be exactly what you’re looking for. Your limit will be low so the chances of your over spending are low, but your credit activity will still get reported so your score will improve over time.

As with any financial tool there are pros and there are cons, here’s what you should expect from a secured credit card so you can make the right decision for your financial situation.

  • A secured credit card is a real credit card. You’ll be able to use your secured credit card anywhere that accepts major credit cards. Yes you need to put a deposit down but that simply covers the risk for your credit card company. If you use your secured credit card and manage it properly you’ll get your deposit back and won’t be able to tell the difference between it and an average credit card.
  • It can help you rebuild your credit. Because a secured credit card is a real credit card your credit actively will be reported to all of the major credit bureaus. This is what will allow you to improve your credit score.
  • Is usually easier to qualify for. It’s not guaranteed that you’ll be approved but the chances are slightly higher. The requirements and qualifications are less strict than those associated with average credit cards.
  • Small credit limit. Unfortunately your limit will be small; it’s usually the same as your deposit. The point of a secured credit card is not to have a huge limit but to slowly and safely build your credit score over time.
  • Fees. Depending on which secured credit you go with the fees can start to add up. But don’t be discouraged, if you do your research you’ll more than likely be able to find a card those fees are much more affordable.

How to Positively Affect Your Credit Score

Your credit score will not magically start to improve once you get approved for a secured credit card. It will take time and hard work on your part. The most important thing you can do when shopping around for the right secured credit card is make sure that your credit activity will be sent to the two major credit bureaus (Equifax and TransUnion). If your credit activity is not reported then there is no way for you to improve your credit score.

If you’re trying to improve your credit you need to treat your secured credit card like a financial tool, not like cash to be spent. You’ll need to always without fail make your payments on time. Your credit utilization ratio should also not go above 25% and less than that is better. This means that you shouldn’t carry a balance that’s above 25% of your total limit. So if your credit limit is $300 then your balance shouldn’t go above 75%.

While you shouldn’t over use your secured credit card when trying to build your credit score, you also shouldn’t under use it. Don’t be afraid to charge a few things every month and then pay off your balance when it’s due, this is exactly what you should be doing to improve your credit.

With a secured credit card your financial history, or lack of one, won’t be held against you. You’ll have the opportunity to improve your credit score and create a credit history. Secured credit is one of the smartest and easiest ways to get your credit back on track. Do some research, shop around and find the one that’s best suited for your situation and start working towards a healthier financial future.

Learn how your credit score is calculated here, or watch the video.

How Does a Secured Credit Card Work?

Check out another great post from our friends at Credit.com:

If you’re trying to establish or rebuild your credit, you’ve probably heard that a secured card is a good way to get started. With a secured card, you place a security deposit with the issuer and, in turn, get a major credit card — often quite easily.

But is your security deposit safe? A reader posted the following question on the Credit.com blog:

I have a secured credit card and have closed the account. The amount deposited for security more than covers the balance on the card, but the credit card company wants me to pay off the card (and pay interest on it until it’s paid off even though the account is closed and cannot be used) rather than using the amount already deposited with them. Is this legit? The bank (that originally issued) the card failed, and now the card is with a different bank that is almost impossible to get in touch with. I’m afraid that if I pay off the balance, I’ll never get my security deposit back. Any ideas on this? — William

William’s experience raises some important questions about how secured cards work, and is a reminder of why it’s important to choose a secured card carefully.

The security deposit you use to open a secured card is a lot like the security deposit you give to a landlord when you rent an apartment. If you pay your rent and take care of the apartment, you get your security deposit back when you move out. If you don’t, you may end up forfeiting part or all of your deposit. Similarly, with a secured card if you manage your account properly and pay all your bills, you get your deposit back after you close your account.

Why can't i get approved for a secured credit cardAt least that’s the way it is supposed to work. But just like a bad landlord can hold the deposit and force you to fight to get it back, a secured card issuer that isn’t reputable can make it difficult to get your deposit back.

For safety’s sake, choose an issuer that will hold your funds in a federally-insured back account. Typically, that will be an FDIC-insured bank, though some credit unions also offer secured cards to their members and should be insured through NCUA. You can also research the safety and soundness of the bank that will hold the funds, or use it to check out a bank that currently has your deposit.

Watch out for red flags that could indicate you aren’t dealing with a reputable company. “Legitimate secured card providers will offer a variety of ways of funding the security deposit — including online transfer from a checking account or by using a debit card,” says John Yardley, spokesman for First Progress Card, a leading national provider of secured MasterCard credit cards. “They should never ask you to send cash, or to make a check out to anyone other than the financial institution.” He warns that “since the applicant is putting up a deposit, secured and prepaid card offers can sometimes be used as a scam — especially online.”

With many of these programs, your credit line will be equal to your deposit. To raise your credit limit, you’ll usually have to add funds to your deposit, though some programs will gradually increase your credit limit once you’ve established a positive payment history. And a few offer a “graduation” feature where you can get an unsecured card after a certain period of on-time payments, if you qualify. Or you may simply decide to move on to another card once your credit has improved.

When you are ready to close your account, ask the issuer for instructions if you aren’t sure how to do that. Just as some tenants don’t pay their last month’s rent because they figure their security deposit should cover it, some secured card holders may assume they can simply stop paying the bills and let their deposit cover their final bill. But that can be a costly assumption.

Many consumers choose secured cards at least in part because they are trying to establish a positive credit rating. And hopefully they’ve chosen a card that will report payments to all three credit reporting agencies each month. While that can help improve their credit scores, it can also backfire if the cardholder decides to stop paying the bills. Some issuers may report those missed payments to the credit reporting agencies, causing the cardholder’s credit scores to drop.

That’s not always the case, though. “At First Progress we report card accounts to the bureaus as ‘closed — paid in full’ so long as the security deposit covers the charges on the card account, even if the account was closed because payments were not made,” says Yardley. He adds, “It’s possible that other card programs may leave a derogatory record in the cardholder’s credit bureau file in this type of situation.”

How long does it take to get a secured card deposit back when you close the account? It shouldn’t take long if you are dealing with a reputable issuer. While there may be a short waiting period to make sure all charges have posted to the account, you shouldn’t have to wait forever to get your money back. “If the account is closed without a balance owed, the full security deposit should be provided back to the cardholder within ten days,” Yardley suggests.

Since William’s card issuer has already indicated that he needs to pay the balance before he can get his deposit back, he may be at risk of damaging his credit if he decides to stop paying. Plus the issuer may charge him interest and late fees. He may be better off paying the balance and then requesting a refund.

To be on the safe side, William can research the contact information for the banking regulator for the issuer that holds his deposit in advance. Hopefully he won’t need to contact them, but he’ll know where to turn if he does have trouble getting his money back and needs to file a complaint.

How to Use a Secured Credit Card to Build Credit

With tighter lending restrictions these days, a lot of younger people in college and new graduates are having a hard time getting approved for credit cards or loans of any type. And because they aren’t able to access credit in the first place, it creates this cycle of not being able to improve their credit score and getting turned down for credit time after time.

This is a very common problem. In fact, I get the “how do I build credit when I don’t have any?” question almost as much as any other here at 20somethingfinance. Fortunately, there are a few ways to build your credit report and credit score – and one of them is through a secured credit card.

Secured credit cards are commonly used as a way to build your credit and prove to creditors that you are a safe bet in the future. To understand what a secured credit card is, you first need to understand what ‘secured debt’ and ‘unsecured debt’ are.

Secured debt is debt that you back up with collateral – a possession that can be taken from you. If you do not make your payments, you may lose the possessions that you purchased via this debt and be subject to other legal action. Auto loans or mortgages are two examples of secured debt. If you do not pay off your debt, each could be taken from you to pay off your debt.

Unsecured debt is debt that has no collateral behind it. This includes all credit cards excluding secured credit cards. If you don’t pay off your debts here, you may be harassed by creditors and bill collectors the rest of your life, but they have little power other than ruining your ability to receive secured debt at good rates in the future. It is hard to get approved for unsecured debt if you have no credit history or have a bad credit score because of this reason. And it’s for that very same reason why those with poor credit scores are usually charged higher rates – because they are higher risk.

Back to secured credit cards.

In the case of secured credit cards, your collateral is your cash. Much like a debit card or checking account, you must deposit funds into a secured credit card account. If you do not pay your bills, those funds can be taken from you to pay off the balance. The amount that you deposit becomes your credit line for the secured card. Other than that, there is no big difference between an unsecured credit card and a secured one. They can be used in the same way, and they have the same Visa or MasterCard logos.

Because you have backed up your purchases with collateral, secured credit cards are extremely easy to obtain and get approved for so that you can build your credit. Most secured credit cards will report your activity to the three credit bureaus on a monthly basis.

Another interesting thing to note about secured credit cards is that most offer interest on your collateral. It’s usually a nominal amount, similar to what you might get for a savings account, but better than nothing!

What is the Difference Between a Secured Credit Card and a Debit Card?

The difference between a secured credit card and a debit card is that funds are not deducted from your cash deposits with secured credit cards like they are with debit cards. Just like with unsecured credit cards, you must pay off a monthly balance and interest could be charged if you do not. This is not the case with debit cards. Also, you cannot build a credit history with a debit card – a key differentiator.

You will not be debited simply for missing one or two payments. Usually the deposit is only used as an offset when the account is closed, either at the request of the customer or due to severe delinquency (150 to 180 days).

Secured credit cards are still credit cards. And because of that, they are inherently dangerous to use because of the high interest rates involved. Remember, the point of a secured credit card is to build your credit – not encourage irresponsible purchasing behavior.

As with all credit cards, you should pay your balance in full every month so as to not incur any interest charges. And use your credit card as you would your cash. Don’t let the ease of the swipe negatively influence your spending habits.

When shopping for a secured credit card, here are a few guidelines to follow:

  • Shop around. There is a wide variety of cards, and you should only get one from a reputable issuer. There are a number of shady secure credit card issuers out there that pray on those with poor or no credit, so be careful.
  • Many secured cards charge an annual fee, but increasingly more do not.
  • You should never be charged interest if you are using your card appropriately, but you should still shop around for a reasonable APR that compares to unsecured credit cards.
  • You should not have to sign up for any additional services or fees.