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Secured Credit Cards vs. Secured Loans

When someone is in need of a large amount of cash—perhaps to pay for car repairs or a medical bill—it could be challenging to obtain without good credit. Any attempts to get approved for an unsecured personal loan or credit card may not be successful. Lenders weigh the risk factors of lending to borrowers before making their final decision regarding approval or denial, and they may not want to take the risk with borrowers who are in the credit building or rebuilding stages. At least, lenders might not be willing to provide them with an unsecured form of credit.

If you find yourself in this type of situation, here are two solutions to consider: a secured credit card or a secured loan. As the names imply, these are two types of secured lending. 

What is Secured Lending?

Secured lending refers to loans that require collateral as a condition for loan approval; in other words, these are collateral loans. For mortgages, the real estate is the collateral, and for car loans, the vehicle is the collateral. 

In other situations, though, like when a person needs funds from a cash loan for house or car repairs or medical bills, the lender usually isn’t using a borrower’s asset as collateral. In these cases, lenders rely on credit scores to make the decision to issue funds. If the borrower’s credit score isn’t high enough to qualify for a personal unsecured loan or credit card, then secured lending can be a good solution. 

When you’re in need of cash, securing it can be your main focus—and a secured loan or a secured credit card can help you accomplish that goal. They can also help build or rebuild your credit, which comes with numerous benefits.

Improving Credit Scores

The benefits of boosting your credit: an enhanced ability to qualify for loans in the future, helping you to qualify for higher loan amounts with better interest rates, and more negotiating power when securing those loans. Plus, an improved credit score can help you obtain lower insurance policy premiums and pay lower deposits when renting an apartment. Added all together, this can lead to significant savings over the years—meaning, hundreds if not thousands of dollars. 

How much and how quickly will a secured loan help build your credit score? It varies depending on these factors: your payment history on the collateral loan and any other loans; revolving lines of credit; your credit utilization ratio, which is the sum of your outstanding balances on any open lines of credit divided by your total credit limit; how many recent credit inquiries have occurred; the number of your opened accounts; and how long they’ve been open. Here’s more information about credit scores and how to achieve good ones

Secured Loans with SCCU Accounts as Collateral

At Space Coast Credit Union (SCCU), you can use your regular savings or certificate of deposit (CD) balances as collateral for a secured loan. With this type of collateral loan, you can request up to 100% of the balance with no application fee. SCCU offers competitive interest rates and flexible terms and provides rapid approval decisions. On savings secured loans, the term can go up to 120 months. On CDs, the secured loan period can’t exceed the CD’s maturity date.

Now, here’s a key advantage of a secured loan: making payments on time and paying the collateral loan off according to its terms can help you build or rebuild your credit. Plus, because it’s based on funds that you already have on deposit at SCCU, it’s typically faster and easier to get loan approval. Interest rates are low, specifically:

  • 3% above the variable dividend rate on your savings account
  • 2% above your fixed CD rate

Before deciding to go this route, here are a couple of things to consider. First, if you are unable to make loan payments, the lender retrieves the funds in the savings or CD account that you used as collateral. Second, you will pay interest fees. 

If you decide that this type of collateral loan is the best way to secure the funds you need, you can apply online. Questions? Here’s how to reach out for answers

Secured Credit Cards

A secured credit card is another type of collateral line of credit that you can get at SCCU that works similarly to a typical unsecured credit card. You’ll apply for one and, upon approval, receive a plastic credit card in the mail. Each month, you’ll receive a statement that lists the outstanding balance and minimum payment due. 

Now, here’s the difference between an unsecured and a secured credit card. As collateral, the borrower will need to provide a refundable security deposit. The deposit amount varies by lender, perhaps between $200 and $2,500, and the amount can be tied to the credit limit on the credit card. Merchants who accept this credit card won’t know that it’s a secured card. 

With a secured card, a borrower who becomes significantly late on their credit payments—in other words, defaulting—the lender can dip into the deposit to cover the amount owed. If you close a secured credit card with a balance of $0 owed, the lender will return the deposit.

Responsible usage of the secured credit card over a period of time, which includes making all minimum payments on time, can help improve your credit score. If you pay a partial amount and carry the balance into the next month, this is when interest starts to accrue. Be careful about how high the balance goes, though. If the revolving balance goes above 30% of your credit limit, this can raise a red flag to lenders and could hurt your credit score. This is true with both secured and unsecured credit cards.

Best Secured Card to Build Credit

When seeking the best secured card to build credit, carefully review the following factors:

  • Do all three major credit bureaus receive reports of secured credit card usage? This is important because it can help you to improve credit scores at all three of them.
  • Do you qualify for the card? Usually, borrowers without good credit can qualify because of the deposit that lenders use as collateral. 
  • Do they have security measures to help prevent fraud?
  • What other perks do they offer?

At SCCU, our Visa® Secured credit card checks all the boxes above when you’re looking for the best secured card to build credit. We offer low variable interest rates, and our minimum deposit is $300 with a maximum credit line of $3,500—and, at SCCU, there’s no minimum credit score required to qualify for a Visa® Secured credit card. You also don’t have to pay an annual fee, nor a balance transfer fee, nor a cash advance fee. Plus, with responsible usage, you could eventually qualify for an unsecured credit card or loan. 

At SCCU, we focus on the financial wellness of our members with our collateral loans being just one example. We provide a wealth of articles, tools, and product solutions to help you to achieve your financial dreams!

How to Apply for a Secured Credit Card at SCCU

Ready to apply for a secured credit card at SCCU? You can conveniently apply online with the following three easy steps; we’ll:

  • ask what credit limit you desire
  • request personal and financial information and important documents
  • review your application and, through your preferred contact method, get back to you quickly

If you qualify, then we’ll mail you your credit card! It’s really that simple. 

Apply for a Visa® Secured credit card at SCCU here!

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