Credit Cards With No Credit Check
Many banks are now offering credit cards with no credit check. These credit cards, known as "secured credit cards", are the perfect antidote to a poor credit history. They allow consumers with past credit issues an opportunity to build solid credit history without the risk of falling into more debt. They also protect the lender from potential financial loss by "securing" the credit line with a savings account in the name of the consumer. It is the perfect "win - win" situation . . . the consumer earns a chance to prove he is credit-worthy, while the bank or lender can do business with the consumer without fear of default.
How a Secured Credit Card Works
A secured credit card requires a cash collateral in the form of a deposit to a savings account. This savings account then becomes the credit line for your credit card. Not only can you get a secured credit card without a credit check, but in many cases your employment history and other personal information won't be needed.
A secured credit card works something like this -- if you deposit $500 in the savings account which will be acting as collateral for your secured card, you can charge up to $500.
In some cases, you can add to the initial deposit to add more credit to your card. Many banks now offer some sort of incentive system whereby they will reward a secured credit card holder for good payment history by adding to your line of credit without the necessity of an additional deposit. Incentive programs like this are good for the consumer because they reward good financial behavior, and I know I always respond to financial incentives.
Before you rush to the nearest bank and beg for a secured credit card, there are some questions you need to ask.
Where Can I Get A Secured Credit Card With No Credit Check?
Bankrate.com hosts this great list of secured credit card issuing banks.
The great thing about the Bankrate.com list is that you can search for specifics about the cards -- look for features that you want, write down the names of the cards and banks, and search for reviews of the cards at other websites. Think of this as "doing your homework".
Another good source of secured card info is the local credit union. If you're a member of a credit union, ask about secured cards there. According to Bankrate.com, about half of the nation's credit unions offer some form of secured cards to their members. Credit unions tend to offer lower interest rates and are generally free from annual fees.
How much money do I have to deposit?
The amount of money required for a deposit will vary from card to card. Because these are secured credit cards with no credit check, you need to expect a fairly low extension of credit. It appears that most cards range from around $300 to $500 at a maximum. Your credit limit is determined by that initial deposit, though some cards offer a small percentage above or below that amount.
Are there any red flags to watch out for?
When applying for secured credit cards, look for cards with low fees. Credit companies that charge huge fees are more likely to take advantage of your credit situation, charge all kinds of hidden fees, and generally treat you (the consumer) like just another number. The number one thing to look out for is the secured credit card "insurance policy" that many banks try to tack on to your card. This policy charges you around $50 a month, making your secured credit card little more than a financial burden.
You can keep yourself out of secured credit card trouble by researching a card before signing up. Write down any fees the company is charging, and compare rates from bank to bank.
Do all banks offer secured credit cards ?
Unfortunately, no. There is a trend in credit extension now to stop issuing secured cards and return to traditional unsecured credit arrangements. What many banks will do is offer you an unsecured card (with no credit check) that simply has a lower limit and much higher interest rates and fees. They do this because you are a "credit risk".
Finding a good secured credit card may take a little elbow grease, but the work will be worth it. There aren't many better ways of repairing credit troubles than opening a secured credit card without a credit check.
Are secured cards reported to all three major credit bureaus?
Before you open a secured credit card account, ask the lender if they report to all three major credit bureaus. If the issuer doesn't report your information, there's almost no reason to open a secured credit card. Ask if the card issuer "flags" your credit report to the credit bureaus as a :secured card". This is a bad thing for you -- future creditors will see that your rebuilt credit history comes from a secured card, and could use that information against you.
How much interest will my secured card deposit earn?
For most secured card accounts, you'll be earned the same interest that you would earn if you opened a regular savings account at the same bank.
The collateral account for secured credit cards doesn't have to just be a savings account -- many banks offering secured cards allow you to open a money market or CD account as well. You'll have to do your own research to determine what kind of collateral account you want to open.
It is also a good idea to ask how long your collateral will be frozen in deposit after the secured card is closed. Many secured card issuing banks will want to keep the deposit for a specific number of billing periods in order to "cover" any charges that arrive after your close the account.
What is the best use for a secured credit card?
Since you're using this secured credit card to repair your credit history, it is best if you pay off the full value of the card every month. Don't buy more than you can pay off each month. The idea of a secured credit card isn't to allow you a vehicle for carrying a balance from month to month -- by paying off your debt each month, you'll prove to future and current creditors that you are credit worthy.
Remember also to get rid of a secured credit card (and upgrade to an unsecured card) as soon as your financial institution will allow, usually after about a year of on-time payments.
All secured credit cards have annual fees and higher interest rates than regular, unsecured cards. If you can prove your credit worthiness by using a secured credit card responsibly, you should be able to slip into something more comfortable credit-wise in as little as twelve months.
If you're looking for a credit card that won't require a credit check, a secured credit card is the thing for you.