Having to apply for a secured credit card because you have too little credit experience or too low of a credit score to qualify for a regular, unsecured one can be disappointing. But getting a thin envelope with a rejection — and no card — is even worse. What can you do if an issuer won’t give you a credit card, even when you’re willing to put the full amount of your credit limit on deposit with them? (And why would they even do that?)
First, take a deep breath. This is not the end of the world; it’s not even your last chance at establishing credit, though your choices are narrowing. Be sure you understand why your application was rejected. (It could be something as simple as not demonstrating income — a card issuer generally refrains from issuing a card to someone who does not have the means of paying the bills.) Thanks to stipulations in the Fair Credit Reporting Act, lenders must provide an explanation as to why you didn’t get the card. This paperwork can help you figure out what’s holding you back and what your next move should be before you apply for a new credit card
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What Are Your Other Options?
Secured cards, like unsecured ones, come with different terms and interest rates, and the most desirable ones — those with the lowest fees and interest rates — may be slightly more difficult to obtain. So, one option is to look for a second- (or third-) tier card you can qualify for, possibly one that does not require a credit check. You may want to use this lower-tier card to demonstrate your creditworthiness, then ask to upgrade to a card with better terms and conditions down the line.
Another option is a credit-builder loan. These loans are typically offered by community banks or credit unions, and you’ll often need to secure the loan with an account at that financial institution equal to the amount of the loan. Interest is relatively low on these loans, and on-time payments are reported to the credit bureaus. At the end of the loan term, your cash is returned to you. Similarly, you may be able to get a share-secured loan by borrowing against a deposit in the financial institution. (These loans aren’t credit cards, but if your goal was to improve your credit, they can help — and better credit will help you to qualify for a credit card.)
If the problem is you can’t get a bank or credit union account because you’ve mishandled one in the past, you may need to apply for a joint account with someone who has better credit than you do. In this case, you could also see if having a co-signer could get you approved for a secured credit card or loan. (You could alternately see if a friend or family member will add you as an authorized user to their existing credit card account, though there are instance where issuers don’t report authorized users to the credit bureaus, since they’re not liable for making payments on the account.)
Remember, a co-signer is doing you a huge favor; it’s a risk for him or her, and it offers essentially no benefit. You may want to offer to automate loan payments or to have statements sent to the co-signer so he or she can see that you are paying as agreed. Hopefully, after you’ve had an opportunity to improve your credit standing, those accounts can be reopened in your name only.
A Better Card in Your Future?
No matter how you try to address the situation, it’s important to be sure that the creditor reports to the major credit bureaus so you do get credit for good payment behavior and can readily qualify for financing (with better terms) down the road.
It’s smart to monitor your scores (you can get your credit scores for free on Credit.com) and to check your free annual credit reports at AnnualCreditReport.com. You may be able to dispute any inaccurate or time-barred information that could be hurting your credit standing. At the same time, it’s crucial to make your payments on time and to keep your credit utilization (if you have a credit card) low — less than 30% of your credit limit, though the lower, the better. Attending to those things should put you on a path toward better credit and easier approval for an unsecured credit card.
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Note: It's important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.