secured credit card Archives - Hanover Mortgages

May 11, 2022

How to Get a Credit Card for the First Time: A Step-By-Step Guide

Getting a credit card for the first time comes with a unique set of challenges. A lack of a credit history can make it harder to qualify, and you’ll have a learning curve when it comes to how to choose and use your first credit card. However, the actual process of applying for a credit card for the first time isn’t all that different from applying for a second or a tenth credit card.

Keep reading to learn how to get your first credit card.

Qualifying for a Credit Card

When someone applies for a credit card, the credit card issuer will take a number of factors into consideration, including their credit score and income, when deciding whether to approve their application. It’s also necessary to make sure you’re old enough to get a credit card — you usually must be at least 18 years old.

Someone’s credit score can indicate how likely they are to pay back their credit card on time. The higher someone’s score is, the more creditworthy they appear. Income is also a major factor that’s considered, especially when figuring out someone’s credit card limit. Applicants under the age of 21 who can’t show independent income generally must get a cosigner.

Additionally, those applying for a certain type of credit card, such as a student credit card, will have to make sure they meet that card’s particular requirements. While a student credit card may be available to those with no or limited credit, the cardholder generally must be enrolled in a qualifying program.

Recommended: Charge Cards Advantages and Disadvantages

How to Apply for a Credit Card With No Credit History

It can be difficult to qualify for a credit card before you’ve built a credit history, given what a credit card is. The catch? It takes credit to build credit. Thankfully, there are a few credit card options that consumers can consider if they don’t yet have a credit history.

Starter Credit Card

Starter credit cards are a type of credit card designed for consumers who have no credit history or a very limited credit history. Starter credit cards help cardholders build a credit history when they use the card responsibly. If they make on-time payments each month, they’ll see their credit score rise over time and will start to build a solid credit history.

Generally, starter credit cards don’t come with the best rates and terms, but when used to make purchases someone can afford to pay off each month, they can be a very helpful financial tool. Student credit cards are an example of starter cards that can help someone establish a credit history.

To apply for a starter credit card, you generally must provide the following:

• Social Security number

• Sources of income

• Monthly housing or rent costs

Those under the age of 21 who do not have your own source of income will need to get an adult cosigner who’s over the age of 21. For those who are applying for a student credit card as their choice of starter credit card, the credit card issuer may request information such as the name of your school or program, your major, and your expected year of graduation.

Secured Credit Card

Another credit card option for those who are new to credit is a secured credit card. With a secured credit card, the cardholder must deposit money to use the card.

The amount they deposit will act as their credit limit, and they’ll then borrow against that deposit. For example, if they deposit $500, they can make up to $500 worth of purchases anywhere that accepts credit card payments. Once they pay off their card balance, they can spend up to $500 again.

When at least the credit card minimum payments are made on time, the cardholder will build a credit history and improve their score. Functionally, a secured credit card works more similarly to a debit card but helps to build credit.

Applying for a secured credit card requires much of the same information as applying for an unsecured credit card. This includes your name, address, Social Security number, and income information. Additionally, it’s necessary to have the cash on hand to make the security deposit. Depending on the card, there may or may not be a credit check required.

How to Choose Your First Credit Card

When shopping around for a credit card, it’s a good idea to compare the fees, interest rates, and cardholder benefits of multiple credit cards. Here’s why these factors matter when choosing a first credit card:

• Credit card fees. From annual fees, to foreign transaction fees, to late fees, all credit cards have some fees that cardholders need to be aware of. Certain transactions, such as buying a money order with a credit card, can also involve fees. Being aware of the fees a card may charge and finding a credit card with low fees can help save money.

• Interest rates. If a cardholder carries a balance, they’ll need to make interest payments. Credit cards interest rates are displayed as annual percentage rates (APRs) and the higher someone’s APR is, the more they’ll pay in interest. What’s considered a good APR for a credit card will vary depending on someone’s credit profile as well as the type of card they’re applying for, but it’s generally below the average rate, which is around 16%.

• Rewards. From cash back to travel points to discounts at major retailers, credit cards can come with some pretty cool rewards. It’s worth comparing the rewards offerings of multiple credit cards to see where it’s possible to benefit more from good credit habits. Keep in mind, however, that the top rewards cards are usually reserved for those with solid credit histories.

How to Apply for a Credit Card

The process of figuring out how to apply for a credit card online for the first time is usually pretty straightforward. When it’s time to apply for a credit card, the applicant generally needs to supply the following information as a part of the credit card issuer’s application process:

• Identification (such as a Social Security number)

• Source of income (such as pay stubs or W-2s)

• Credit score (generally a score starting in the mid 600s is required)

Further information may also be requested, as the process can vary somewhat from issuer to issuer.

Once you’ve submitted your credit card application, you’ll wait to get an approval or a denial. It may take just minutes to get a response, or it may be a few days or even a few weeks. The creditor must send a decision within 30 days at the most.

If you’re approved, you’ll then receive your new card in the mail. You won’t have to worry about replacing it until your credit card expiration date, at which point the issuer will send you a new card.

How to Use Your First Credit Card

The key to using your first credit card is to limit charges to those that you can afford to pay off — and then making sure you do so in a timely manner. Doing so will ensure you never miss a payment, which will boost your credit score, and avoid late payment fees and interest payments.

Further, paying off your balance at the end of each month (or more often) will help keep credit utilization rate low. Credit utilization measures how much credit someone is using in comparison to how much they have available. The lower someone’s credit utilization, the more their credit score will benefit.

For instance, a potentially good way a student could use their first credit card is to limit their purchases to their textbooks for a semester. This will put guide rails on their spending as they learn to budget and stay on top of their credit card statements.

As someone adjusts to using a credit card, it’s also important to gain an awareness of credit card safety best practices. For instance, be on the lookout for credit card skimmers, which are devices attached to credit card readers designed to steal your information. Also be wary of sharing your credit card information, such as the CVV number on a credit card, with anyone.

What Should You Do if Your Application Is Denied?

If someone’s credit card application is denied, the best thing they can do to move forward is to work on improving their credit score. This will improve their creditworthiness, and thus their odds of getting approved in the future. Making on-time payments and keeping a low balance on an existing credit card are both ways to improve a credit score.

But if someone can’t qualify for any credit cards, how can they improve their credit score? In this scenario, one option is to become an authorized user on a family member’s credit card, such as a parent’s.

When someone is an authorized user, their score will improve as the main account holder makes on-time payments. However, both the account holder and authorized user’s credit scores are at risk if either party makes purchases they can’t afford, so it’s important that everyone has a plan for paying off the bill at the end of the month.

Recommended: When Are Credit Card Payments Due

Things You Need to Know as a First-Time Credit Card User

When someone is a first-time credit card user, it’s important that they understand the basics of how a credit card works. Specifically, they’ll need to know what interest rates and fees they may end up paying by using their credit card (especially if they plan to carry a balance).

Using a credit card can feel like shopping with free money, but at the end of the month, the cardholder needs to be prepared to pay their balance off in full. Otherwise, they risk paying more for the purchases they already made in the form of interest and fees. Once debt starts racking up, it can become hard to get rid of.

What If You Are Not Ready to Apply for a Credit Card?

Applying for a credit card for the first time is a big responsibility. If someone isn’t ready to take on the responsibility, they do have the option of using a debit card to gain some of the convenience that comes with a credit card.

A debit card is attached to a bank account and allows the account holder to make payments without keeping cash on hand. Debit cards don’t involve borrowing money, so interest rates aren’t a concern.

However, debit card holders will still need to look out for potential fees. Additionally, debit cards don’t have quite the level of protections that credit cards offer, such as the option to request a credit card chargeback.

Get a Sofi Credit Card Today and Earn 2% Cash Back

Getting your first credit card is a big step in the direction of financial independence. Much of the same information is required when it comes to how to get a credit card for the first time as is requested of any credit card applicant. However, first-time applicants will have to navigate the added challenge of having no or limited credit history.

Whether you’re choosing your first credit card or your fifth, it’s important to evaluate a number of factors to select the right card for you, including APR, fees, and rewards. For instance, SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.¹ Learn more about the SoFi Credit Card today.

FAQ

What is a good credit limit for a starter credit card?

The credit limit for a starter credit card is usually low. With a secured credit card, the limit is the amount of the security deposit that the cardholder makes.

What are the requirements to apply for a credit card?

To apply for a credit card, it’s usually required that the applicant provide proof of income and identifying information such as a Social Security number. They will also need to have an acceptable credit score to qualify.

Photo credit: iStock/Demkat

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
¹See Rewards Details at SoFi.com/card/rewards.
SOCC0322014

Source: sofi.com

April 18, 2022

What Is a Credit Card? Find Out All You Need to Know

A card is a small, rectangular piece of plastic or metal that lets you make purchases. Whether you’re buying lunch or a new piece of furniture, a credit card enables you to borrow funds from a credit issuer to pay the merchant. Then, every month, you’ll receive a statement in the mail with your balance, which you’ll want to pay off every billing cycle. Otherwise, you’ll owe interest on the remaining amount.

While the concept sounds simple, it’s easy to rack up debt if you’re not careful. With that in mind, here’s credit cards explained in-depth.

Credit Card Meaning

Banks and other financial institutions issue credit cards to consumers to extend revolving lines of credit. A revolving line of credit means the cardholder can borrow money up to their credit limit and then repay it on a continuing basis.

With other lines of credit, like a personal loan, you take out a lump sum amount and agree to repay it within a specific timeframe. During this timeframe, you make fixed installment payments. Whereas with a credit card, you can repeatedly borrow against the limit, which gives you more flexibility to use the card as needed.

When you receive your credit card, you’ll note several different numbers on it. There’s the credit card account number, alongside your name and the credit card issuer’s logo. Also on a credit card are the credit card expiration date, which marks when the card is valid through, and the CVV number on a credit card, which offers an extra layer of security in purchases made online or over the phone.

Recommended: What Is a Credit Card CVV Number?

How Does a Credit Card Work?

Once you have a new credit card in hand, you can use it to make purchases at places that accept credit card payments. Then, every month, you’ll receive a statement either electronically or in the mail, depending on your preference. The statement will include all purchases, your outstanding balance, and the minimum monthly payment due.

You’re required to make at least the minimum payment on your account to keep it open and in good standing. However, you also can opt to pay your entire balance in full or decide on another amount (as long as it meets the minimum payment requirement). If you were to pay an amount that exceeds your total balance, then you’d end up with a negative balance on your credit card.

If you aren’t able to make the minimum credit card payment, the outstanding balance will roll over to the next month and begin accruing interest and fees — which can significantly add up over time. Therefore, it’s best to get in the habit of paying off your credit card every month to avoid paying an exorbitant amount of interest. But, if your finances don’t allow you to pay the entire balance, you could make smaller payments throughout the month to minimize the amount of accumulating interest.

To ensure you make your monthly payments, you can usually set up auto-pay for the minimum payment. This way, you won’t miss a payment and get charged a late fee. Unfortunately, late payments also can end up on your credit report, which can negatively affect your credit score.

How Does Credit Card Interest Work?

Every credit card comes with an annual percentage rate (APR), which represents the annualized cost of borrowing including interest and fees and marks an important part of how credit cards work.

Some credit cards have more than one APR, such as a balance transfer APR, an introductory APR, or a cash advance APR. While introductory APRs are usually lower than the standard rate but only last for a promotional period, cash advance APRs are typically higher than the standard purchase APR.

You will pay interest based on the APR on a credit card if you have an outstanding balance that carries over from one month to the next. Credit issuers use your average daily balance, interest rate, and the number of days in the billing cycle to calculate the interest amount.

Usually, credit issuers offer a grace period where interest will not accrue. This period is typically between the statement date and due date, commonly 21 days.

In some cases, you may also owe other credit card fees. For example, if you make a late payment or return payment, you could be charged a late fee. Or, if your credit card charges an annual fee, the credit issuer will add it to your statement. Also, some credit cards charge foreign transaction fees when you use your card in different countries.

Types of Credit Cards

Now that you understand how credit cards work, here are some available credit card options.

Reward Cards

You can earn cashback, points, or even miles when you spend money using a rewards credit card. Some credit cards may also offer a sign-up bonus. For example, a credit card could offer 100,000 points when you spend $4,000 or more within the first three months of enrolling.

You can usually find a card offering rewards that coincides with your spending habits. For example, if you love shopping at a particular store, retail-branded cards have lucrative benefits for frequent shoppers.

Keep in mind that you typically have to have a good credit score to qualify for a rewards credit card. But, even if you do qualify, it’s essential to keep your spending habits in check. Reward cards incentivize you to spend money, so you don’t want to end up overspending and getting into a pile of debt you can’t climb out of. As long as you monitor your spending habits, a rewards credit card is worth considering.

Credit Builder Cards

If you have little to no credit or need to build your credit back up, a credit builder credit card is a viable solution. You’ll likely start with a lower credit card limit and an APR that’s higher than the average credit card interest rate to reduce the credit card issuer’s risk.

Credit builder credit cards usually don’t come with the bells and whistles that rewards cards offer. Instead, the card can help you build your credit. With that said, you’ll want to make on-time monthly payments and pay off your balance every month. Not doing so could negatively impact your credit history and cost you a lot of money.

Balance Transfer Cards

Do you have a high-interest outstanding credit card balance? Using a balance transfer credit card is one solution for helping you tackle your debt. Balance transfer credit cards let you move your current credit card debt to a new account with a lower interest rate. Additionally, transferring your balance means you’ll only have to stay on top of one payment a month, rather than multiple.

Having a good credit score can help you qualify for a balance transfer credit card. If you qualify, you could receive a lower ongoing rate or even a 0% introductory rate, which usually will last for six to 18 months. You’ll want to try to pay off your balance within that promotional period, before the higher APR kicks in.

Note that balance credit cards often charge a fee for transferring a balance — usually 3% to 5% of the amount transferred. So, make sure you factor in the additional fees before you move over your existing balance.

Secured Credit Cards

Another option for those with little to no credit or poor credit history is a secured credit card. With a secured credit card, you make a refundable deposit, which protects the card issuer from defaulted payments. If you default, the card issuer can use the deposit to recoup the loss.

Your deposit is usually the amount of your credit limit. For example, if you are approved for a $500 limit, you may need to put down $500. Though your deposit will be tied up while the account is open, a secured credit card can allow you to build your credit when used responsibly. Just keep in mind that while secured credit cards are generally easier to qualify for, they also tend to have higher APRs and fees.

If you decide to close a secured credit card account, you can usually get your deposit back. The card issuer may also give you the option to upgrade to an unsecured card if you’ve proven your creditworthiness. In this case, you’d receive a refund as well.

Travel Credit Cards

If you’re a frequent flier or visit hotels often, a travel credit card can be a lucrative choice. Many airline and hotel brands have credit cards that let you earn miles, points, or rewards to use toward your travel adventures. Some credit cards may also come with a sign-up bonus or extra perks such as free checked bags, access to VIP lounges, and travel insurance.

When selecting a card, you’ll want to find the card that makes sense for the way you travel. That way, you can get the most out of your credit card. Travel credit cards usually require applicants to have good to excellent credit for approval. So, before applying, make sure to check your credit score to see if it’s acceptable.

0% Introductory APR Credit Cards

If you’re getting ready to make a big purchase, a 0% introductory APR credit card might be worth considering. With this type of credit card, the card issuer gives you a 0% introductory rate to make purchases during a specific time frame. This way, you can make the purchase without paying interest on the expensive item(s).

However, you’ll want to make sure you repay the entire amount before the introductory period ends to avoid interest. Before you swipe, make sure you have a plan to pay off the balance within that time frame.

To qualify for a 0% introductory APR credit card, you usually must have good to excellent credit.

Reasons to Use a Credit Card

Credit cards offer a convenient way for consumers to borrow money. Other reasons a credit card can be worthwhile include to:

• Build credit. Credit cards give you the means to establish a strong payment history, which can help boost your credit score. When you need to apply for a personal loan or mortgage in the future, a higher credit score can help you qualify for better terms and rates.

• Track spending. Credit cards are valuable tools for budgeting since many cards let you track your spending on an app or online. Also, some credit cards give you the ability to categorize your expenses to see where your money is going and make adjustments accordingly.

• Get fraud protection. If your debit card information is stolen, fraudsters can directly access your bank account. But, if you use a credit card, you usually have more fraud protection benefits in places such as purchase protection and identity theft protection. For instance, you can dispute a credit card charge and even receive a credit card chargeback.

• Earn rewards. Many credit cards offer a reward program that gives you points or cashback when spending money. For example, you could earn money for traveling, shopping, or even statement credits.

Remember, while credit cards are a valuable financial tool, they can also hinder you if not used responsibly. Just as you can boost your score with a credit card, you can also damage it — and rack up a mountain of debt in the process that may be hard to get rid of (for instance, here’s what happens to credit card debt when you die).

How to Apply for a Credit Card

Before you apply for a new credit card, you’ll want to check your credit score. You can pull a free copy of your credit report at AnnualCreditReport.com. Knowing your credit score will help you determine whether you meet the approval requirements for the cards you’re interested in.

Once you decide on some card options, you can usually get prequalified online. If you prequalify for a card, your approval odds could be in your favor (though you’re still not actually approved). Also, when companies process your preapproval, they only complete a soft credit inquiry, which won’t impact your credit like a hard inquiry does. However, when you’re ready to apply, the credit issuer will conduct a hard credit inquiry.

If you’re approved for the card you apply for, you should receive your credit card in the mail within 14 days.

Apply for a SoFi Credit Card Online and Earn 2% Cash Back¹

Understanding what a credit card is and how it works is crucial to ensuring you use your credit card responsibly. A credit card can serve as a great financial tool, especially given how many types of credit cards are out there. While you will need to be aware of interest and fees, a credit card can also help you to build your credit history, earn rewards, and track your spending.

Want a credit card that helps you reach your financial goals? No matter if you’re trying to save, invest, or pay off debt, the SoFi Credit Card offers up to 2% cash back. Plus, it has no foreign transaction fees and reduces your APR by 1% once a member makes 12 monthly on-time payments, of at least the minimum payment due, for as long as they continue to make such payments.

FAQ

What are the main differences between credit and debit cards?

Debit cards use the money in your checking account to pay for purchases. When you make a purchase using a credit card, on the other hand, you’re using a line of credit to borrow money. Therefore, you usually have to pay interest on your transactions with a credit card if you don’t repay your balance right away.

How do I choose a credit card?

It’s helpful to select a credit card that matches your needs and financial habits. You’ll also want to make sure you meet the card issuer’s approval criteria. For example, if a credit card requires a credit score of 700 and your score is 650, you may have to explore other options or take steps to improve your credit before applying.

How long does it take to get a credit card?

Once you submit a credit card application, it may take just minutes before you’re approved. Usually, you’ll receive your credit card within 14 days of approval. You can call credit issuer and request expedited processing if you need your credit card sooner.

SoFi cardholders earn 2% unlimited cash back when redeemed to save, invest, or pay down eligible SoFi debt. Cardholders earn 1% cash back when redeemed for a statement credit.¹
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Photo credit: iStock/Nodar Chernishev
SOCC0222006

Source: sofi.com

April 4, 2022

Guide to Credit Card Age Limits

If you’re young and looking to build credit, opening a credit card can be a great step. However, you need to be at least 18 years old to open your own account. If you’re under the age of 18, you can’t open your own credit card, but you can be an authorized user on someone else’s account.

Even if you’re old enough to get a credit card, when you’re under the age of 21, you may face additional requirements when applying. Read on for tips on getting a credit card when you’re young and options you might consider to be able to start building your credit.

At What Age Can You Get a Credit Card?

To open your own credit card, you must be at least 18 years old.

However, if you’re between the ages of 18 and 20, you may encounter stricter verification requirements, including showing proof of ability to repay, such as through income, or getting a cosigner. This is due to regulations from the Credit CARD Act of 2009, which is intended to protect young consumers from taking on more debt than they can handle.

After age 21, these regulations won’t apply to you, but card issuers may still review your income as part of your application. It’s also important to pay attention to the terms and conditions of the credit card, such as the APR on a credit card, as you consider your credit card options and apply.

If you’re younger and have a limited credit history, you may only get approved for a card with a higher APR. Do your research before applying to have an idea of what is a good APR on a credit card.

Tips for Getting a Credit Card When You’re Young

Once you understand what a credit card is and how credit cards work, you may see the appeal of a credit card and want to open one. If you’re under the age of 18, the best things you can do to work toward being able to get your own credit card are to start building credit and to learn the basics of financial management.

Start Building Credit

Building credit when you’re young may be hard, especially if you’re under 18 and not yet eligible for your own credit card. One way to do so, however, is by becoming an authorized user on a credit card account.

A responsible parent or guardian can add you as an authorized user for their account, even if you’re still under the age of 18. Being added to the primary cardholder’s credit history can help build your credit.

Learn the Basics of Financial Management

It’s also important for young people to learn the basics of financial management. Learning about things like budgeting, credit card interest, and credit scores before you even own a credit card can help put you on the path to financial success. That way, when you do eventually get your own credit card, you’ll know how to stay on top of credit card minimum payments and avoid debt.

This can also be a good time to familiarize yourself with common financial scams, such as credit card skimmers, so you’ll know what to be aware of when you do get your own card.

How to Get a Credit Card If You Are 18 to 20 Years Old

Many young people between the ages of 18 and 20 are attending college or trade school or working. They may not have a lot of income yet, and their credit history may be limited. Still, first-time cardholders do have options for getting a credit card, which can be an important step toward building their credit history and score.

Secured Credit Cards

One option is secured cards, which are a type of credit card that require the cardholder to make a refundable security deposit. The security deposit typically becomes the amount of the card’s credit limit.

Secured cards are often marketed toward people who want or need to build or rebuild their credit, so they can be a great choice for young people who are age 20 and under. Once you make the initial minimum security deposit, you can use your secured credit card in the same way that you would use any other credit card. Like any other credit card, your credit card will have a credit card expiration date and a CVV number.

Since your credit limit is often equal to the amount of your security deposit, secured credit cards often don’t have very high credit limits compared to the average credit card limit. However, having a lower credit limit can help prevent young people from overspending. It’s important to remember that with a secured card, your money is tied up temporarily in the security deposit. While you get your security deposit back when you close or upgrade the account, that’s money you otherwise can’t use in the meantime.

Become an Authorized User

Young cardholders could also become an authorized user, which is someone who’s added to a credit card account with authorization to use that account. The authorized user typically has their own card and can use it to make payments as usual. However, only the primary account holder is held responsible for payments.

The authorized user benefits from this arrangement because the primary cardholder’s account history and activity are reported on the authorized user’s credit report, which can help build their credit history.

Apply for a Student Credit Card

Student credit cards are designed and marketed for students roughly between the ages of 18 and 22 years old. Students generally have different needs than other credit card customers, so it may make sense for them to get a credit card designed specifically for them.

As an added bonus, some student credit cards offer cashback on categories that students may spend more on, like restaurants and grocery stores.

Consider Credit Builder Credit Cards

There are also some credit cards that are available to applicants with poor credit who are looking to build their credit. Responsible use of a credit card can be a great way to build or improve credit, as your payment history will be reported to all three major consumer credit bureaus. Just keep in mind that these cards can have higher than average credit card interest rates and more fees due to their availability to those with lower credit scores.

Get a Cosigner

Another option for applicants between the ages of 18 and 20 is to get a cosigner for a credit card. Indeed, applicants within this age range must get a cosigner if they can’t provide proof of employment or income when applying.

A cosigner can be a parent, guardian, or other family member who assumes legal and financial responsibility for the applicant if they are unable to pay off the balance of the card. Ideally, the cosigner should have a decent credit history to improve the chances of the credit card application getting approved. If the cardholder fails to repay a card or falls in debt, it will negatively affect the credit score of both the cardholder and the cosigner, so this is an important responsibility.

Check with your bank or credit card issuer before using a cosigner, since not all banks allow cosigners on credit cards.

Apply for a SoFi Credit Card Online and Earn 2% Cash Back¹

Once you reach the age of 18, you will be able to get a credit card of your own. You can make sure you’re ready for this responsibility by building your credit history, getting down the financial basics, and knowing how to apply for a credit card when the time comes. You’ll have options as a young credit card applicant, from secured credit cards to student credit cards to credit builder cards and more.

Depending on your credit history, one option could be a cash back credit card from SoFi, which offers 2% unlimited cash back when you redeem it to save, invest, or pay down an eligible SoFi loan. Plus, the SoFi credit card doesn’t have an annual fee.

FAQ

Can I get a joint card?

Some card issuers allow cosigners on credit card. If you’re not able to qualify for a credit card on your own, you could also explore becoming an authorized user on someone else’s credit card account.

Does a student credit card affect credit score?

Yes, a student credit card affects your credit score. A student credit card is a regular credit card that’s just designed with students’ unique needs in mind, so it will affect your credit like any other credit card would.

What is the limit on a student credit card?

Credit limits on student credit cards vary by issuer and card. However, credit limits on student cards are often lower than the average credit card limit due to the fact that students generally have more limited credit histories and lower incomes.

Do you need credit for a secured credit card?

Most secured credit cards have less restrictive requirements for an applicant’s credit. In fact, many secured credit cards consider applicants with very poor or limited credit.

¹See Rewards Details at SoFi.com/card/rewards.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’swebsite .
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

Photo credit: iStock/RgStudio
SOCC0222004

Source: sofi.com

April 2, 2022

The Best Prepaid Cards for Budgeting of 2022

@media (max-width: 1200px) body .novashare-buttons.novashare-inline .novashare-button-icon width: 100%; .novashare-inline .novashare-button .novashare-button-block background: #000000; .novashare-inline .novashare-button .novashare-border border-color: #000000; .novashare-inline .novashare-button .novashare-inverse color: #000000;

Additional Resources

Using a budgeting app is the best way to stay on top of your household finances and ensure you’re spending less than you earn. But let’s face it: It’s a lot of work to manage all those inputs and outputs, especially if your cash flow is complicated.

Using a reloadable prepaid card for budgeting can simplify your financial life, at least when it comes to managing your day-to-day expenses and short-term savings. It’s a modern twist on the old-school concept of envelope budgeting, where you set aside a finite amount of cash each month to control your spending.

Some prepaid cards are better than others for budgeting. Read on for a list of the best.

Best Prepaid Cards for Budgeting

These are the best prepaid debit cards and credit cards for people who want to take control of their budgets. Each does at least one thing really well, whether it’s empowering parents and kids to work together on shared household expenses or earning a solid, budget-boosting return on everyday spending.

Motley Fool Stock Advisor recommendations have an average return of 618%. For $79 (or just $1.52 per week), join more than 1 million members and don’t miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now

Our top overall pick delivers the best value for users thanks to low fees and unbeatable ease of use.

Best Overall: Bluebird by American Express

The Bluebird® American Express® Prepaid Debit Account noses past the competition thanks to low fees, impressive ease of use, and lots of value-added features.

Two benefits deserve special mention:

Free cash reloads at Walmart — Bluebird is one of the few prepaid debit cards with a free cash load option
No monthly maintenance fees

Other highlights include:

Free person-to-person (P2P) transfers to other Bluebird debit card holders — perfect for shared household budgeting
Free ATM access at more than 30,000 MoneyPass ATM network locations
Get paid up to two days early with direct deposit if your payer qualifies
No foreign transaction fee
Free bill pay
No inactivity fee
Upgrade to a Bluebird bank account with no monthly fees

Best for Kids and Teens: FamZoo

FamZoo is a fantastic family budgeting app. Relatedly, the company is behind the best debit card for kids and parents — the best solution for adults who want to set their tweens and teens up for financial success in the not-so-distant future.

FamZoo’s selling points for parents and teens include:

Free direct deposit for teens who work outside the home
Advanced allowance and chore payment features that incentivize kids to get in-home jobs done on time
Parent-paid interest — you set the interest rate and eligible balance
Customizable savings goals and subaccounts
Real-time spending and transaction alerts
Card locking and unlocking right in the app

Additional features:

Track informal family loans and lines of credit in external IOU accounts
Pay as little as $2.50 per month per household when you prepay the subscription fee
Use a text-based system in the mobile app to collect money and reimbursement requests from your kids
Transfer funds instantly from a linked checking account or savings account with no reload fee

Best for Cash Back: Green Dot

Green Dot may be the most comprehensive prepaid card provider on this list. But its top selling point is much more tangible: It offers the best reloadable debit card for cash-back rewards.

The best Green Dot card for cash back is the aptly named Green Dot Cash Back Visa Debit Card. It earns 2% cash back on eligible in-person and online purchases.

It gets better. The Green Dot Cash Back Visa Debit Card boasts an interest-bearing savings account that earns 2% APY on balances up to $10,000. That’s one of the best rates of return in the prepaid debit card world.

Additional features:

Three other Green Dot debit cards to choose from — Visa Debit, Pay As You Go Visa Debit, and GO2bank Visa Debit
Get paid up to two days early with a qualifying private payer
Get paid up to four days early with a qualifying government payer

Enjoy free mobile check deposit and free online bill pay
Seamlessly lock and unlock your card
Get up to $200 in overdraft protection with at least two direct deposits totaling $400 or more within a 35-day period

Best for Day-to-Day Money Management: Serve American Express

Serve American Express is another prepaid debit card option from American Express. With four different settings, it’s even more customizable than Bluebird and a great budgeting tool for folks who want to keep close tabs on how much they spend.

Choose the Serve card that works best for you:

Free Reloads: Pay no reload fees, transaction fees, or ATM fees at in-network ATMs. Just pay a single monthly fee of $6.95.
Cash Back: Earn 1% cash back on all eligible transactions and pay a cash reload fee ranging up to $3.95 per load, depending on the location. You won’t incur any transaction fees or in-network ATM fees. The monthly fee is $7.95.
Free Direct Deposit: Set up a recurring monthly direct deposit of $500 per more to avoid the $6.95 monthly fee. Cash reloads cost up to $3.95 per load, but you won’t pay in-network ATM fees or transaction fees.
Pay-As-You-Go: This card has no monthly fee but does charge $1 per transaction and $2.25 per ATM withdrawal. You’ll pay up to $3.95 for cash reloads.

Additional features:

Get paid up to two days early with early direct deposit
Reload at tens of thousands of CVS, Walmart, and Dollar General locations
Make free P2P transfers to other Serve card users — ideal for shared household budgeting
Customize text alerts to get notified of transactions, low balances, and other account activity in real time
Buy online to avoid the initial load fee

Best for Investors: Greenlight

Greenlight is a household money management app with powerful parental controls and financial education features. Its kid-friendly debit card is one of the best on the market — close behind FamZoo’s.

But Greenlight really stands out for its value-added features. And one in particular deserves mention: an investing platform with virtually no fees and negligible minimums. Both parents and kids can invest in a taxable brokerage here, pairing the practical power of a reloadable debit card with the magic of compound interest.

You’ll need to upgrade to the Greenlight + Invest plan to use the investing platform. At $7.98 per month, that’s well worth the cost.

Additional features:

Create an in-app chore list and make your kids’ allowance contingent on completion
Schedule and automate weekly or monthly transfers with no manual deposits required
Get real-time notifications of transactions with vendor and balance details
Set and update customizable spending rules and savings goals
Upgrade to Greenlight Max ($9.98 per month) to get identity theft protection, 1% cash back on eligible purchases, 2% APY on eligible savings balances, and other value-added features

Best for Building Credit: Chime Credit Builder Secured Visa

The Chime Credit Builder Secured Visa® Credit Card is a secured credit card designed to build and improve credit for first-time credit card users and those working to overcome recent financial challenges.

As a secured credit card, the Credit Builder Secured Visa requires an upfront security deposit before you can use it. That serves as a built-in spending limit — a budget cap, if you will. This cap resets whenever you pay off your balance, but you need to have funds in your linked checking or savings account to do that.

It’s an easy way to prevent overspending, at least until you graduate to an unsecured credit card. Plus, there’s no credit check to apply, no minimum security deposit, no annual fees, and no interest charges.

The Chime Credit Builder Secured Visa links to your Chime deposit account, which boasts some useful additional features:

Virtually no account fees
0.50% APY on eligible savings balances
No minimum opening deposit or balance requirement
Get paid up to two days early by direct deposit

Methodology: How We Select the Best Prepaid Cards for Budgeting

We use several important factors to evaluate the best prepaid cards for household budgeting. Each relates in some way to the card’s flexibility, use cases, or cost.

Recurring Card Fees (Annual Fees or Monthly Fees)

Few prepaid cards are truly free. Most charge fees for cash loads and reloads, ATM withdrawals, and other account activities.

Some prepaid cards also charge recurring fees as a condition of use, either annually or monthly. These charges can really add up, eating into any savings you’re able to achieve through sound budgeting or spending-control strategies. All else being equal, we prefer prepaid cards that don’t charge monthly fees or annual fees.

Load Fees

Many reloadable debit cards charge fees to reload with cash, check, and sometimes even electronic transfer. It’s less common for prepaid cards to charge for direct deposit loads, but not totally unheard-of.

We prefer cards that keep load fees to a minimum, allow users to avoid them with regular direct deposit, or both.

Card Type

We cover two types of prepaid cards here: credit and debit cards. Reloadable prepaid debit cards are more closely associated with prepaid card budgeting, but don’t count out secured credit cards. The required security deposit is a built-in spending curb.

Both debit and credit cards have upsides and downsides, so we don’t strongly favor one over the other. We do like that secured credit cards help build credit history, though.

Built-in Budgeting Tools

We’re fans of prepaid cards with built-in budgeting and spending management tools. This capability isn’t too common in “adult” cards yet, but it’s par for the course in kid-friendly debit cards and the apps that come with them. That’s why you’ll find multiple debit cards with parental controls on this list.

Parental Controls

If you don’t have kids or don’t let your kids use your prepaid cards, you won’t care about parental controls. But if you’re using these cards to teach your kids the value of a dollar, you’ll want to be able to track and manage their spending.

That’s why we’re fans of custodial debit cards with built-in parental controls, although we don’t hold the lack of parental controls against cards that don’t advertise themselves as kid-friendly.

Rewards Program

It’s not customary for prepaid cards to earn cash-back rewards, but it’s slowly becoming more common. All else being equal, we favor prepaid cards — whether credit or debit — that pay users back.

Interest on Balances

Interest on prepaid card balances isn’t customary either, but you can find it if you know where to look. We’re always on the lookout for interest-bearing cards, and you’ll find our favorites on this list.

Become a Prepaid Card Expert: Your Questions Answered

You have questions about using prepaid debit cards to budget. We have answers.

Does a Prepaid Card Build Credit?

It depends on the type of card. A reloadable prepaid debit card doesn’t build credit, even if it belongs to a major payment network like Visa, Mastercard, or American Express.

A secured credit card does build credit. So if you’re looking to improve your credit score while strengthening your household’s finances with a prepaid card, you know what to do.

Which Prepaid Card Can Hold the Most Money?

No single prepaid card towers above the rest when it comes to the maximum allowable balance or load rate.

That said, a few reloadable prepaid debit cards deserve mention, including the PayPal Prepaid Mastercard and the Netspend Prepaid Visa. Both allow balances above $10,000, making them useful budgeting tools (and direct deposit collectors) for people earning six-figure incomes.

Prepaid credit cards tend not to be so generous. The best secured credit cards’ credit limits top out around $5,000, at which point you’ll need to upgrade to an unsecured credit card or switch to debit.

How Much Does It Cost to Load a Prepaid Debit Card?

It depends on the card and the load method. Cash load fees typically range from $3 to $5 per load, although the initial load is often free. Load fees for electronic transfers may be lower or waived entirely, and direct deposit loads usually don’t cost anything.

What Are the Most Common Prepaid Card Fees?

In no particular order, the most common prepaid card fees include:

Monthly fees, also known as maintenance fees
Annual fees, which are more common on prepaid credit cards
Cash load fees
Check load fees
Late payment fees on prepaid credit cards
Negative balance fees (overdraft fees) on cards that allow overdrafts
ATM fees charged for ATM withdrawals and loads
Foreign transaction fees
Account opening fees

Before opening a prepaid card account, carefully review possible fees and charges. Think about how you’re likely to use the card and which fees you’re likely to incur as a result. Then choose a card that won’t unduly burden you with charges.

How to Choose the Best Prepaid Card for Budgeting

First, decide which type of prepaid card you need. If you want to build credit for yourself or an authorized user, you’ll need a prepaid credit card — a secured card.

If you don’t care about building credit right now or don’t want to consent to a credit check before opening your account, consider a prepaid debit card instead. From there, evaluate potential card fees with an eye to the fees you’re most likely to incur. It doesn’t matter if your preferred card charges an ATM withdrawal fee if you never use cash, for example.

Then move on to budgeting capabilities. That’s why you’re here, after all. Look for cards that make it easy to manage day-to-day expenses and control your spending. If you have kids and think they’re ready for their own debit cards, you’ll want to limit your search to cards with built-in parental controls, spend tracking, and features that help you manage allowance and chore payments.

You can’t go wrong with any of the cards on this list. But that doesn’t mean you shouldn’t put in the work to find the most fit card for your needs.

.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrappadding:30px 30px 30px 30px;background-color:#f9fafa;border-color:#cacaca;border-width:1px 1px 1px 1px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-contents-titlefont-size:14px;line-height:18px;letter-spacing:0.06px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;text-transform:uppercase;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrap .kb-table-of-content-listcolor:#001c29;font-size:14px;line-height:21px;letter-spacing:0.01px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-wrap .kb-table-of-content-list .kb-table-of-contents__entry:hovercolor:#16928d;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-list limargin-bottom:7px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-table-of-content-list li .kb-table-of-contents-list-submargin-top:7px;.kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_e2dee1-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:beforebackground-color:#f9fafa;

Brian Martucci writes about credit cards, banking, insurance, travel, and more. When he’s not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. Reach him on Twitter @Brian_Martucci.

Source: moneycrashers.com

April 1, 2022

The Best Credit Builder Loans for 2022

Dig Deeper

Additional Resources

You have to start somewhere. If you have bad credit, limited credit, or no credit history at all, you know this better than most people.

You may also know that responsibly using credit — be it an installment loan for people with bad credit, a low-limit secured credit card, or a line of credit specifically designed to build credit — is a great way to dig yourself out of a credit hole.

These products are all structured as loans, and they’re specifically designed to build credit and bulk up your credit report without costing you an arm and a leg.

The Best Credit-Builder Loans for 2022

All the credit products on this list can help you build or rebuild your credit if you use them responsibly and pay your bills on time. All are widely available. That’s a big advantage over credit-builder loans issued by community banks, credit unions, and some localized online lenders, and a key criterion for inclusion on this list.

Each of the lenders mentioned here does at least one thing really well, whether it’s offering unusual borrowing flexibility or a wide range of loan amounts and terms. Our best overall pick delivers the best value on the path to building good credit, in our view.

Best Overall: Self

Formerly known as Self Lender, Self is the best credit-builder loan company on the market right now. It offers four loan plans tailored to different income levels and time horizons. The higher-priced plans deliver larger payouts when the loan term expires, while longer-term plans build your credit for longer and may result in a higher ending credit score:

Small Builder: Pay $25 per month for 24 months to get $520 cash at the end of the term. The total cost is $89 for an effective APR of 15.92%.
Medium Builder: Pay $35 per month for 24 months to get $724 cash at the end of the term. The total cost is $125 for an effective APR of 15.97%.
Large Builder: Pay $48 per month for 12 months to get $539 cash at the end of the term. The total cost is $46 for an effective APR of 15.65%.
X-Large Builder: Pay $150 per month for 12 months to get $1,663 cash at the end of the term. The total cost is $146 for an effective APR of 15.91%.

Self is unusually flexible and borrower-friendly too. Additional features include:

A flat administrative fee of just $9, regardless of loan plan
No hard credit pull and no credit score required to apply
Reports to all three major credit bureaus
Cancel anytime before the end of the loan and get your payments back, less interest and fees — without damaging your credit
Get access to the Self Credit Builder credit card in as little as three months — choose which portion of your accumulated balance to use to secure the card

Best for Low Payments: SeedFi

SeedFi is the best credit-builder loan provider for borrowers who can’t or don’t want to put much toward their loans each month. Its payment plans start at just $10 per month.

It gets better. SeedFi’s Credit Builder Prime plan is technically free — all the money you put in the plan’s savings account is yours, and SeedFi doesn’t deduct interest or fees. The catch is that you have to contribute at least $500 to get your money back, which can take more than four years at the $10 monthly minimum.

SeedFi also offers more traditional credit-builder loans through its Borrow & Grow plan. Here, you get access to a portion of your loan right away and the remainder after you complete your payment plan.

Additional features:

Get up to $4,000 immediately with Borrow & Grow, although lesser amounts are typical
Borrow & Grow interest rates start around 8%
Borrow & Grow payments start at $80 per month or $40 per week
No credit check with Credit Builder Prime

Best for Higher Loan Limits: CreditStrong

CreditStrong is also known for low payments. Its payment plans start at just $15 per month. But the real selling point here is the opportunity for a super-high borrowing limit by credit-builder loan standards: up to $10,000 in loan funds.

CreditStrong offers an unusually wide array of loan structures as well. Its loans fall into three general categories:

Subscribe: For $15 to $30 per month, save up to $2,500 over as long as 10 years.
Build and Save: For as little as $38 per month, save up to $2,000 in 24 to 36 months.
MAGNUM: For $55 to $110 per month, save up to $10,000 over as long as 10 years.

Additional features:

No credit score required
No credit check during underwriting
Cancel anytime and get your principal back, less interest and fees, with no impact on your credit
Interest rates start around 7.5%
Business credit building options available

Best for Comprehensive Financial Services: MoneyLion

MoneyLion is the most well-rounded financial app on this list. With a built-in everyday bank account and debit card, it’s much more versatile than your typical credit-builder loan. Its capabilities include:

Up to $1,000 in interest-free cash advances against your next paycheck
Round up your debit card purchases and convert the difference to bitcoin
Earn cash-back rewards on eligible purchases
Get your paycheck up to two days early with eligible direct deposit
Auto-invest starting with just $5 and pay no asset management fees

MoneyLion’s credit-builder loan boasts competitive interest rates and a short 12-month term, which means less paid in interest over the life of the loan. In exchange for a $19.99 monthly membership fee, you get additional features like:

Immediate access to a portion of your funds
Additional cash advances against your loan balance — up to $300 per pay period with no interest charges
Robust credit monitoring tools
Personalized credit building tips and insights

Best for Credit Union Fans: Digital Federal Credit Union

Digital Federal Credit Union, or DCU, offers one of the most borrower-friendly credit-builder loans around. The headline is the very low interest rate — fixed at 5% APR.

That shouldn’t be a surprise, as DCU is a credit union known for low interest rates and competitive terms. If you’re looking to establish a new credit union relationship that’s not limited by geography while building credit, give DCU a closer look.

Additional features:

Choose from 12- or 24-month terms
Earn dividends (interest) as your savings balance grows
Borrow $500 to $3,000, depending on your needs

Methodology: How We Select the Best Loans for Building Credit

We use several key criteria to evaluate credit-building personal loans and the lenders that offer them. Each relates in some way to the overall quality of these loans: their cost, ease of use, flexibility, and more.

Ease of Application

If you’re applying for a credit-builder loan, you might not be a seasoned borrower. Which means you might not be familiar with the ins and outs of the credit application process.

That’s why we prefer credit-builder loan providers that make it easy to apply online in a single sitting. Although you should always expect to provide proof of identity, residence, and income, you shouldn’t have to fax these documents or bring them to a physical bank branch.

Unless you want to, of course.

Credit Check

Credit-builder loans aren’t as risky as they seem. The lender often keeps the proceeds in an account they control, so if anything goes wrong, they can simply take your money and close out the loan.

Nevertheless, some lenders do require hard credit pulls as a condition of underwriting. Where possible, we look for lenders that don’t have this extra requirement. Instead, they allow borrowers to apply with just a soft credit check or no credit check at all.

Loan Term

Credit-builder loan terms are generally short, often just one to two years. If you need more time to pay off your loan, look for a lender that’s a bit more flexible on this point.

We’re fans of providers that go all the way up to five years. Just remember that you’ll pay more interest over the life of a longer-term loan, even if the interest rate and loan amount are the same.

Loan Fees

Credit-builder loans aren’t known for excessive fees. However, some providers charge monthly or annual membership fees that cover the cost of the loan and other associated benefits. These aren’t necessarily dealbreakers, but we prefer lenders that omit them.

Other possible loan fees include origination fees and late payment fees. Again, we prefer lenders that keep these to a minimum.

Interest Rate

Credit-builder loan interest rates typically come in lower than secured credit cards. This is great for borrowers who don’t want to pay massive amounts of interest over the life of a loan. But small differences in the rate can still add up, so we’re mindful of who’s charging what.

Loan Amount

Credit-builder loans tend to be small. When the primary purpose of the loan is to build credit, and you might not even have access to the funds, this isn’t a bad thing. It has the added benefit of keeping monthly payments low.

All that said, we give preference to lenders that offer the option of larger loans — upwards of $1,500 where possible. That way, you’ll have a bigger windfall when you pay off the loan.

Access to Funds

Many credit-builder loan providers restrict access to loan proceeds until the term ends. This limits their risk and helps keep interest rates low.

However, we do appreciate more lenient lenders. And we’re especially fond of lenders that let you cancel your loan in the middle of the term if you’re struggling to make payments. Do this and you should get back any principal you’ve paid, meaning your efforts won’t have gone to waste.

Become a Credit-Builder Loan Expert: Your Questions Answered

You have questions about credit-builder loans. We have answers.

What Is a Credit-Builder Loan?

A credit-builder loan is an installment loan specifically designed to build the borrower’s credit. It usually has the following features:

Low loan principal, typically under $3,000
Relatively low interest rates in comparison to credit cards
Relatively short loan terms, often under five years
Restrictions on how you can use the proceeds before paying off the loan

Don’t confuse credit-builder loans with credit-builder lines of credit or secured credit cards. While these products have similar purposes, their interest rates tend to be higher and their terms are open-ended, meaning you can carry a balance indefinitely as long as you make minimum payments.

Can a Credit-Builder Loan Hurt Your Credit Score?

If you don’t make your payments on time or stop paying your loan altogether, a credit-builder loan can definitely hurt your credit score.

As with any other loan or line of credit — or any other bill for that matter — you need to make good on your promise to repay your credit-builder loan on time and in full. Otherwise, your credit score could end your loan term in worse shape than it began.

How Much Does a Credit-Builder Loan Cost?

It depends on the interest rate, fees, and loan amount. Credit-builder loans generally have lower interest rates than credit cards, but the fees can add up. Look for a loan with a low or nonexistent origination fee and no ongoing “membership fee,” which really just adds to the total cost (and effective interest rate) of the loan.

What If You Can’t Make Payments on Your Credit-Builder Loan?

Talk to your lender about options for modifying or deferring your loan payments. The lender may require you to show that you’re experiencing financial hardship due to job loss, reduced work hours, or an unexpected financial emergency.

You shouldn’t expect your lender to work with you to reduce or suspend your payments. If they allow you to cancel your loan and pocket any principal you’ve paid so far, consider taking the deal. It’s better than the alternative — defaulting on your loan, forfeiting the proceeds, and seriously damaging your credit.

How to Choose the Best Loan for Building Credit

Start by assessing your strengths and weaknesses as a borrower.

If you’re truly new to credit — as in, you don’t even have a credit score — you’ll need to stick to loans that don’t require a credit check. If you do have a credit score and it’s just not where you’d like it to be, you can expand your search to loans that require credit pulls.

From there, look for reasonably priced loans with good interest rates, low fees, and flexible terms. If you’re looking to use your loan to jump-start your emergency savings fund, make sure the loan is big enough and you’ll have easy access to your funds once the term is up.

Don’t forget to read the fine print on your loan. Make sure the lender reports your payment history to all three major credit bureaus: TransUnion, Equifax, and Experian. Make sure you won’t have to pay a recurring fee — or, if you do, that it’s reasonable. And make sure you meet any minimum borrowing requirements that the lender discloses upfront, such as a minimum income or credit score.

Finally, if you’re not finding any suitable credit-builder loans, consider pausing your search and working to improve your credit score. Do this well enough and you might find you have no use for a credit-builder loan after all. You can skip right to more appealing financial products, like cash-back credit cards.

.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-content-wrappadding:30px 30px 30px 30px;background-color:#f9fafa;border-color:#cacaca;border-width:1px 1px 1px 1px;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-contents-titlefont-size:14px;line-height:18px;letter-spacing:0.06px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;text-transform:uppercase;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-content-wrap .kb-table-of-content-listcolor:#001c29;font-size:14px;line-height:21px;letter-spacing:0.01px;font-family:-apple-system,BlinkMacSystemFont,”Segoe UI”,Roboto,Oxygen-Sans,Ubuntu,Cantarell,”Helvetica Neue”,sans-serif, “Apple Color Emoji”, “Segoe UI Emoji”, “Segoe UI Symbol”;font-weight:inherit;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-content-wrap .kb-table-of-content-list .kb-table-of-contents__entry:hovercolor:#16928d;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-content-list limargin-bottom:7px;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-table-of-content-list li .kb-table-of-contents-list-submargin-top:7px;.kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_055987-a5 .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:beforebackground-color:#f9fafa;

Source: moneycrashers.com

March 17, 2022

Using a Secured Credit Card to Build Credit

To get the best terms when purchasing a car or house, applying for a personal loan, or buying a new phone your credit score comes into play. Together with your credit report, your score tells the seller/lender your creditworthiness. Credit rating is based on your previous debt and how you managed it.

If you have a good and long credit history, you get favorable credit terms. On the other hand, without any credit to show or a report riddled with late payments and overdue debts, you’ll attract undesirable terms or not get approved at all.

So, how do you fix bad credit? One of the ingenious ways is using a secured credit card as explained below.

What Is a Secured Credit Card?

A secured credit card is just one of the broad categories of credit cards. The distinction is that, unlike traditional credit cards whose repayment is not guaranteed, the risk of defaulting on a secured card is reduced through a cash deposit.

The limit is equal to the deposit, meaning that the issuer assumes a very small risk. Additionally, the security makes it unnecessary for the issuer to ask for a credit report or attach a cap on credit scores when applying for a secured credit card.

How Much Is the Security Deposit for a Secured Credit Card?

Typically, the card requires the holder to deposit $200 to $300. However, some cards attract a deposit of just $49. The upper limit is around $2500 or more depending on the issuer and previous use of the card. What is important is to remember that the credit line is equivalent to the amount of money you put into the card.

Tips for Building Credit Using a Secured Credit Card

For the card to make a difference in your credit scores, you need to know how to use it wisely. The factors that go into credit rating calculations include; payment history, outstanding debt, new credit, credit mix, and the length of credit history. With this in mind, here is how to use a secured credit card like a pro:

1. Choose Your Card Wisely

Apart from the security deposit, you need to consider how much interest a credit card charges. The APR for secured cards is normally high and constant. It ranges around $24% or more which is in contrast to traditional credit cards that have an APR range of around 13.99% and 24.99%.

Another factor when choosing a card is the reward terms. Such include:

Zero charges on international transfers
Cash backs on restaurant and gas station payments
Zero annual fees

2. Use the Card

Basically, once you deposit the security, the issuer expects you to start using the card. Wise usage calls for not maxing out your limit. You also need to keep a low card utilization; the percentage of the credit you are using is against your limit. The ideal credit utilization for building credit is 30% and below.

3. Make Timely Payments

The whole point of getting a secured credit card is to create a stellar credit history. As such, you have to make timely payments on the card to avoid penalties that lower your credibility. Why? As a factor in credit score calculations, payment history weighs the most at 35% of the total score.

4. Graduate to a Traditional Credit Card

If you use the card diligently, then after a year or thereabouts, your credit score will get a much-needed boost. It follows that you’ll stand a chance of qualifying for better terms on other credit lines. At such a time, and considering that you’ll have learned to use credit wisely, apply for an unsecured credit card. Also, keep in mind that the APR for secured cards is high and could be unattainable for years on end.

The Takeaway

Secured credit cards are a godsend to individuals with no or low credit scores. It is easy to apply and get approved for the card and with the right usage; you’ll see your scores improve in 6 months or so. That said, the card comes with a high-interest rate and you must pay the deposit before the credit becomes accessible.

Source: creditabsolute.com

March 11, 2022

The Best Bank Accounts for Bad Credit

Dig Deeper

Additional Resources

The average U.S. credit score clocks in at 698, according to VantageScore data compiled by Equifax in early 2021. That’s right on the commonly accepted boundary between “fair” and “good” credit, although definitions vary.

But what if you don’t have good credit — or even just-okay credit? What financial doors might you find closed until your credit improves?

Quite a few, unfortunately.

One spot of good news is that it is possible to qualify for a new bank account with bad credit if you know where to look. Read on to find out where to turn.

The Best Bank Accounts for Bad Credit

These are the best bank accounts for people with bad credit. Also known as second-chance bank accounts, they’re specifically designed for people who’ve struggled to qualify for financial accounts due to credit issues or other blemishes in their recent banking histories.

Each does one thing really well, whether it’s serving the needs of entrepreneurs with less-than-perfect credit or delivering cash-back rewards on eligible spending. Our top overall pick offers the best value to the widest user group, in our view.

Best Overall: Chime

Chime offers tremendous value for account holders with less-than-perfect credit. The biggest reason is that it’s one of the few second-chance accounts that offers an opportunity to boost your credit directly. The secret is the Chime Credit Builder Secured Visa Credit Card, a secured credit card with:

No annual fee or interest
No credit check to apply
No minimum security deposit

Chime reports your Credit Builder card activity, including credit utilization and payments, to the three major credit reporting bureaus. Use your card wisely and this could increase your credit score over time.

Additional features:

Get direct deposits up to two days early with qualifying payers
Virtually no banking fees
Automatic savings transfers into a savings account that currently yields 0.50% APY
No minimum opening deposit or balance requirement

Best for Entrepreneurs: Nearside Business Checking Account

Nearside offers the best second-chance account for entrepreneurs with poor personal credit and those looking to build business credit quickly. There’s no one selling point here, but rather an accumulation of business-friendly perks like:

A Mastercard debit card that earns 2.2% cash back on all eligible purchases
Exclusive discounts on business tools and services, such as Yelp, Square, QuickBooks, and Zenefits
Seamless Apple Pay and Google Pay integrations
Fast and free ACH transfers
No account maintenance fees — totally free checking account for businesses

Additional features:

No minimum deposit or ongoing balance requirements
Fee-free access to about 55,000 ATMs in the U.S.
ID theft protection and car rental insurance through Mastercard Enhanced Debit
No NSF fees for insufficient funds

Best for Freelancers: Oxygen

Oxygen is a mobile-friendly bank account that’s also appropriate for people who style themselves as entrepreneurs. But it really shines for independent professionals — freelancers and sole proprietors who run the show themselves.

Like Nearside, Oxygen offers an accumulation of freelancer-friendly benefits:

Up to 5% cash back on eligible purchases
Streamlined LLC creation when you’re ready to formalize your work
No account fees on a basic subscription (Earth)
Up to 1.25% APY on eligible balances

Additional features:

Get your direct deposit up to two days early with qualifying subscription and payer
Get discounted subscriptions to third-party services, such as Netflix, with qualifying subscription
Enjoy luxe travel benefits, such as discounted or free airport lounge access, with qualifying subscription

Best for Cashback Rewards: GO2bank

GO2bank is the best bank account for people with impaired credit and a hunger for cash-back rewards. The headline here is the opportunity to earn up to 7% cash back on eGift Card purchases made in the app — and 3% cash back on good-as-cash Amazon gift card purchases.

Avoid the $5 monthly fee by setting up an eligible direct deposit.

Additional features:

Get paid up to two days early with ASAP Direct Deposit^TM
Up to $200 in overdraft protection with opt in and eligible direct deposit
Easy cash deposits at participating retail stores (subject to fees and deposit limits that may apply)
Earn 1% APY on savings up to $5,000

Best for Digital Banking: LendingClub Bank Essential Checking

Designed for LendingClub Bank applicants whose credit doesn’t qualify them for more generous accounts, the Essential Checking account offers an opportunity to build or rebuild credit while managing your day-to-day finances responsibly.

You won’t have to stick around forever. With responsible use, you may be eligible to upgrade to a Rewards Checking account after 12 months of positive banking behaviors.

Additional features:

Make up to $1,000 in mobile check deposits per day or $2,000 per 10 days
Daily debit card limit of $500
$9 monthly service charge
Seamless integration with mobile wallet apps
Free mobile and desktop bill pay

Best for Big-Bank Resources: Wells Fargo Clear Access Banking

The Wells Fargo Clear Access Banking suite is a great account for people who want to pair the stability of a major financial institution like Wells Fargo with the flexibility of a digital banking experience.

While marketed to teens and young people between the ages of 13 and 24, Clear Access Banking is open to everyone. Kids 16 and under require an adult co-owner, and kids under 18 must open in-branch. A $5 monthly maintenance fee applies to account owners older than 24.

Additional benefits:

Free educational tools and banking resources for budgeting
Robust parental controls for minor account holders
No ongoing balance requirement ($25 to open)
Free peer-to-peer (P2P) transfers through the Wells Fargo mobile app
24/7 fraud monitoring

Best for Young People: Current

Edging out Wells Fargo Clear Access Banking, Current is the best money management app for kids under 18, who generally don’t have good credit (or any credit).

It’s ideal for parents who are eager to give their kids some financial responsibility but not quite ready to take off the training wheels too. Customizable parental controls make overseeing and nudging your kids’ financial behaviors a breeze.

Additional features:

Earn 4.00% Annual Percentage Yield (APY) on up to a total of $6,000 when you open a Current Personal Account
Earn cash back on eligible debit card purchases — up to 15x points per $1 spent with participating merchants
No fees on overdrafts up to $100 with qualifying direct deposit and Overdrive enabled (requires a Current Premium subscription at $4.99 per month)
Direct deposit comes up to two days early with a qualifying payer
Deposit checks right in the app
Easy ATM withdrawals at more than 40,000 fee-free ATMs
No minimum deposit or balance requirements

Best for Savers: Douugh

Douugh is a money management app with a powerful automated tool at its core. Known as Salary Sweeper, it works in the background to divert your income into subaccounts (Jars) earmarked for bills, general spending, and longer-term savings.

The goal is simple: avoid the unpleasant surprise of an unpaid bill, which can further damage your credit, while setting you up to save for the future. Everything left over after Salary Sweeper works its magic is safe to spend on discretionary purchases with your Mastercard debit card.

Additional features:

No minimum opening deposit or ongoing balance requirement
Mobile banking featuring seamless integration with Venmo, PayPal, and other money transfer apps
Virtually no account fees
FDIC insurance up to statutory limits

Methodology: How We Select the Best Bank Accounts for Bad Credit

We use several important factors to assess the best banks for people with impaired credit. Each relates in some way to the cost of banking services or to the overall user experience.

Account Maintenance Fees

You don’t deserve to pay a monthly bank account fee any more than someone with good credit does. That’s why most of the accounts on this list waive monthly maintenance fees entirely or make it easy to avoid them with qualifying activities.

Minimum Balance Requirements

You shouldn’t have to save for months to open a bank account. Your spare change should be enough.

We order this list accordingly. We’re very skeptical of second-chance bank accounts with high minimum balance requirements, and our ideal bad credit banks don’t impose this condition at all.

Other Account Fees

Most bank accounts charge some fees, although many are less common or easy enough to avoid with responsible use. All else being equal, we prefer banks that keep these additional fees to a minimum — or at least transparently disclose them so that account holders don’t feel like they’re being nickel-and-dimed.

Interest Rate and Rewards

The second-chance banking space isn’t known for generous account yields (interest rates) or cash-back rewards. But these perks aren’t impossible to find if you know where to look. All else being equal, we prefer bank accounts that provide some incentive — however modest — to save as you spend (responsibly).

Underwriting and Account Approval Criteria

Banks generally don’t run credit checks as a condition of account approval, but most look at your recent financial behaviors to assess your overall risk.

Many banks get this information from a company called ChexSystems, which collects lots of information about our banking activities. Taken out of context, negative information in your ChexSystems report could give banks pause about letting you open an account. So we prefer banks that don’t pull these reports at all.

Credit-Building Capabilities

Contrary to popular belief, your bad-credit bank account isn’t designed to build or improve your credit score. Not directly, at least.

Some do offer this capability indirectly. Most often, you’ll have the option to apply for a secured credit card tied to your bank account. Use this card responsibly and you could see your credit score improve over time.

Budgeting and Saving Features

We’re big fans of bank accounts and financial apps that have automated budgeting and saving features built into the product. After all, you’re more likely to plan and save for the future when your bank makes it easy. And because budgeting and saving are closely correlated with positive financial outcomes, we look for accounts with these capabilities.

Other Useful Features

The more account features, the merrier. We’re especially interested in bad-credit banking services that take a holistic, long-term approach to personal finance. That means features like taxable and tax-advantaged investment accounts, custodial and joint accounts for kids, and robust financial education resources.

We also prefer mobile-friendly accounts that allow you to do most or all of your money management on your smartphone. If you don’t want to visit a branch or ATM, you shouldn’t have to.

Second-Chance Banking FAQs

You have questions about getting a bank account with bad credit. We have answers.

How Much Do Second-Chance Bank Accounts Cost?

The best bank accounts for people with impaired credit don’t charge monthly maintenance fees or minimum balance fees. They keep other fees to a minimum as well.

That said, many second-chance accounts do charge maintenance fees and other account fees that can add up over time. This is especially common with regional banks and branch-based banks in general, which have higher overhead costs than online banks.

Can a Second-Chance Checking Account or Savings Account Build Credit?

Not directly. A bank account isn’t a credit product and banks don’t regularly report account activity to the major credit bureaus.

Certain second-chance checking accounts may help you build credit indirectly, however. For example, Chime offers a secured credit card to qualified account holders. You’re not guaranteed to qualify just because you have a Chime account, but if you do and you use your credit card responsibly, it could help you build credit over time.

Will Opening a Bank Account Affect Your Credit Score?

No. Banks don’t pull your credit report when you apply to open an account, as lenders (including credit card companies) generally do.

Because the act of ordering your credit report — known as a hard credit pull — can temporarily lower your credit score, this is good news for people concerned about their credit rating. Simply opening a second-chance bank account won’t affect your credit score in either direction.

Can Your Application for Second-Chance Banking Be Denied?

Unfortunately, yes.

Some customer-friendly banks don’t look deeply at your past banking history, and we’ve tried to feature as many of those as possible here. But many institutions run financial behavior reports with a company called ChexSystems, which collects a vast amount of banking and credit information going back as far as five years.

Your ChexSystems report is a lot like a credit report for banks. It tells banks how often you’ve overdrawn your accounts or bounced a check, how often you’ve gone below a required minimum balance, whether you’ve closed any accounts recently, and whether your accounts have been closed due to suspected misuse or fraudulent activity.

If your ChexSystem report contains enough concerning information, you’ll have trouble opening anything other than a second-chance bank account. And in some cases, you might not even be able to do that. This harsh reality is a major driver of America’s financial access crisis, where millions of hardworking folks find themselves unbanked or underbanked.

How to Choose the Best Bank Account If You Have a Bad Credit Score

Trouble qualifying for a mainstream bank account is just one of many downsides of bad credit. Depending on your priorities in life, it might not be the worst — bad credit makes it more difficult to qualify for rental housing and get certain jobs, for example.

Fortunately, you’re not completely without banking choices if your credit score isn’t where you want it to be. Second-chance bank accounts really do want your business.

The best bad-credit bank accounts tend to have some combination of the following factors:

Low or no maintenance fees
Low or no minimum balance requirements and opening deposit requirements
Built-in opportunities to build credit, such as credit builder credit cards for qualified account holders
Approval processes that disregard prior banking activity, including black marks like accounts closed due to negative balances
Built-in features for saving and budgeting
Mobile-friendly interfaces that make it easy to bank on the go and avoid branches and ATMs if you wish

Keep this list handy as you evaluate your bank account options. Pair up with the right bank and use your account responsibly and better opportunities might present themselves sooner than you imagine.

Source: moneycrashers.com

March 9, 2022

Guarantor vs Cosigner: What Are the Differences?

Both guarantors and cosigners add their signature along with yours on a loan application or lease in order to strengthen your odds of approval.

But even though these two roles are similar, they’re not exactly the same. And understanding the difference is vital when it comes time to decide which one you need.

Here’s what you need to know.

Is a Guarantor the Same Thing as a Cosigner?

The short answer: No.

Guarantors and cosigners fulfill similar roles: They make it possible for a primary applicant to be approved for various types of personal loans and other financial products by lending their credit reputation and financial obligation to the application.

But when it comes to the scope of that financial obligation — and the rights they have to the loaned asset — things start to diverge.

What Is a Guarantor?

A loan guarantor is someone who vouches for the primary loan applicant, pledging their legal obligation to repay the loan if the primary borrower fails to repay the loan.

In other words, a guarantor is like a back-up plan for the lender — and as such, those lenders might offer guarantor loans to applicants who wouldn’t qualify on their own.

The guarantor is not responsible for repaying the debt unless and until the primary borrower fails to make their payments and the loan is at risk of being in default.

Additionally, guarantors don’t have any legal right to the loaned money, anything purchased with the loan proceeds, or to live in the dwelling if they’re acting as a guarantor on a lease.

What Is a Cosigner?

A cosigner also pledges their financial responsibility in the event the primary borrower fails to make payments — but that liability begins right away, as opposed to beginning once the primary applicant is at risk of defaulting. For example, many parents act as cosigners on their children’s student loans, since young people tend not to have long and robust credit histories.

Cosigners are also different from co-borrowers in that they don’t have any claim on the loaned asset. For example, if someone cosigns an auto loan for you, they might not have an automatic right to drive the car — whereas if you and your partner apply as co-borrowers, you’d both eventually be listed as owners on the vehicle’s title, once the loan is paid off.

Recommended: Getting a Personal Loan with a Co-Applicant

Guarantor vs Cosigner: The Differences

The main difference between a guarantor and a cosigner is the level of legal liability for the debt or borrowed asset.

A cosigner is responsible for repayment of the debt as soon as the agreement is final and can request to have loan statements sent to them so they’ll know right away if any payments have been missed.

A guarantor is only responsible for repayment of the debt if the loan is in danger of being in default and will only be notified at that point.

Financially, there are also some important differences:

• The primary borrower and the cosigner share equal financial responsibility from the beginning, which means if either party doesn’t make payments according to the loan agreement, both of their credit scores could be negatively affected.

• A guarantor isn’t expected to make payments unless the primary borrower is at risk of defaulting on the loan. If that does happen, it could make it more difficult for the guarantor to obtain credit in the future. If the guarantor cannot make payments on the loan, the credit of both parties can be adversely affected.

Cosigner	Guarantor
Legally responsible for repaying the loan or borrowed asset immediately.	Legally responsible for repaying the loan or borrowed asset if the primary borrower is at risk of defaulting.
Can request regular statements so they’re aware of any missed payments immediately.	Are only notified when the primary borrower is at risk of defaulting.

Recommended: How to Get Approved for a Personal Loan

Guarantor vs Cosigner: The Similarities

Guarantors and cosigners are more alike than they are different. At a glance:

Cosigner	Guarantor
Pledges their financial responsibility for the debt to strengthen the primary borrower’s application.	Pledges their financial responsibility for the debt to strengthen the primary borrower’s application.
May not have any right to the loaned money or asset (exception: the cosigner on a lease, who may be entitled to live on-site).	May not have any right to the loaned money or asset.

Personal Guarantor vs Cosigner: Pros and Cons

As the primary borrower, when deciding between a guarantor and cosigner, the choice may come down to which kinds of loans are available (guarantor loans can be harder to find than loans allowing a cosigner) and what kind of agreement you’re entering into. If you’re signing a lease with a roommate, that person should be a cosigner rather than a guarantor.

Pros of Guarantors	Cons of Guarantors	Pros of cosigners	Cons of cosigners
Can help strengthen your application.	It can be stressful if you default and force your guarantor into the position of repayment.	Can help strengthen your application.	Having to ask someone to cosign for you can be intimidating.
Guarantors are only responsible if you default — their actions don’t have an impact on your finances unless they also fail to repay the debt.	If signing a lease, guarantors generally aren’t allowed to live on-site.	If signing a lease, a cosigner can be your roommate.	If your cosigner fails to pay, that can impact your credit history, too.

Do Guarantors Get Credit Checked?

Yes — as part of the application process, both you and your guarantor (or cosigner, for that matter) will have your credit checked. Generally, the guarantor will need a more robust credit history and income verification in order to cover for a primary applicant’s shortcomings.

Recommended: How to Build Credit Over Time

Are You a Cosigner or Guarantor on Any Debt or Loans?

The only way to find out if you’re currently a cosigner or guarantor on any debt or loans is to review your paperwork. Reading legal or financial agreements in full before signing is important, as well as keeping copies of the agreements to refer to in the future.

When Is a Cosigner or a Guarantor a Good Option?

There are many reasons people choose to apply for unsecured personal loans, but not all personal loans are appropriate for all personal loan uses. For instance, if you’re planning to use a loan to consolidate existing, high-interest debt, it may be worth asking a guarantor or cosigner to help you meet that goal — whereas applying for a loan to take a vacation might not be so wise.

If you’re looking to build your credit history and need extra cash or a line of credit, you might consider an alternative such as a secured credit card or flex loan.

Only you can decide if going into debt is the right move in your scenario — but if your application could use a boost, a cosigner or guarantor could help.

Questions to Ask a Guarantor or Cosigner

One of the weightiest parts of making the decision to use a cosigner or guarantor is the process of actually asking someone to do you this favor, which is a big one. It’s important that there’s mutual trust in the relationship between the borrower and cosigner or guarantor, since their actions can have an impact on each other’s finances.

Some questions to ask your cosigner or guarantor before entering an agreement include:

• Do you have a good credit score and solid financial standing?

• Are you willing to take on this legal and financial responsibility?

• What will our long-term agreement be if I, as the primary borrower, fail to make repayments and force you into the legal obligation to do so?

Personal Loans That Allow You to Use a Cosigner or Guarantor

Not all lending institutions allow applying for personal loans with a cosigner or a guarantor. If you aren’t able to qualify based on your own creditworthiness, you may consider asking the lender if they’ll allow a cosigner or guarantor. Comparing lenders until you find one that best fits your financial situation and needs is a good place to start.

The Takeaway

Guarantors and cosigners fulfill similar roles for a loan applicant, strengthening the application by taking on some level of financial responsibility for the loan.

SoFi offers a wide range of unsecured personal loans with competitive, fixed interest rates and with loan amounts to accommodate a variety of financial needs. We don’t charge origination, prepayment, or late fees, and you can check your rate in just one minute without affecting your credit score.^*

Check your rate on a SoFi Personal Loan

Photo credit: iStock/FreshSplash

^*Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. A hard credit pull, which may impact your credit score, is required if you apply for a SoFi product after being pre-qualified.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp. or an affiliate (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
SOPL1221041

Source: sofi.com

February 26, 2022

How much will a secured credit card raise my score?

When youâre new to credit or your credit score is low, a secured credit card can be one of the most useful tools for credit building.

Sure, itâs not glamorous. Most of the time, it wonât offer rewards, and a high credit limit will require quite an investment. However, these seemingly unimpressive credit cards can make a world of difference for your credit.

A few years ago, I drove my credit into a ditch. My secured credit card got me out of it. Read on to learn how it happened and how you can increase your score with a secured credit card.

Check out all the answers from our credit card experts.

Ask Ana a question.

How much will a secured credit card raise my score?

Itâs difficult to say how much or how quickly a secured credit card can raise your score. Everyoneâs credit situation is unique.

For example, if youâre new to credit and building it from scratch, a secured credit card can quickly give you an excellent boost. On the other hand, if youâre rebuilding credit and have negative items on your credit report (such as late payments and defaults), the process will most likely be much slower.

Let me share a personal example of how I grew my credit with a secured credit card from fair to good in three years.

Back in 2018, my credit was in a sad place. Iâd defaulted on two credit cards, had some minor collections spoiling the picture and only one paid-off auto loan to keep my score from sliding all the way down to the poor rating. Credit card issuers werenât exactly fighting for my business, but Capital One approved me for the Capital One Platinum Secured Credit Card â and so my road back to good credit began.

It wasnât fast, but my credit score was improving. I had some of the collections removed when I paid them off, thanks to the collectorsâ courtesy, and by summer 2019 my credit increased from around 620 to 640.

remove negative items from your report when theyâre accurate; creditors and credit bureaus strive to keep consumersâ credit histories truthful.

I used my secured card very cautiously. Originally, my credit limit was $200, although Capital One increased it to $500 after six on-time payments. I mostly put minor charges on the card here and there and paid them off right away to keep my credit utilization low.

In March 2020, Capital One silently tripled my credit line from $500 to $1,500 â not bad, considering my initial deposit was only $200.Â I called Capital One and asked if I could graduate to an unsecured card, and the representative offered me a product change to the Capital One Quicksilver Cash Rewards Credit Card.

Fast forward to March 2021, and my credit score was more than 50 points higher than what it was three years prior.

Sure, there has been more to my credit rebuilding strategy than just one secured credit card. I used Experian Boost, took out a new car loan and added more cards to the mix. But it was my secured card that jump-started my credit.

How to build credit with a secured credit card

Whether youâre starting to build your credit from scratch or, like myself, trying to fix it after a series of credit mistakes, a secured credit card can offer help.

Hereâs what you can do to use it for your creditâs benefit.

Find a good secured credit card

Like any type of credit card, secured credit cards arenât created equal. Pay attention to terms and fees. Thereâs no reason for a secured card to charge an annual fee, and some cards will also try to push hidden fees on you. Look for a card that will cost you only a security deposit.

My personal favorite secured credit card is the Discover itÂ® Secured Credit Card. Itâs the unicorn of secured cards since it offers cash back rewards: 2% back at gas stations and restaurants (up to $1,000 in purchases per quarter) and 1% on everything else. All the cash back you earn in the first year with the card also gets matched.

Practice good credit card habits

A secured card offers a chance to demonstrate responsible credit behavior. Do so by always paying on time and using less than 30% of your credit line for good credit utilization. For example, if your credit limit is $300, avoid having a card balance over $90 at any time. Paying in full multiple times a month can help you keep your balance under control.

The best practice is never to let the balance roll over to the next month. Not only will this ensure good credit utilization, it will also allow you to avoid expensive interest charges and credit card debt.

Ask for a product change

After your credit score has increased, it may be a good idea to call the issuer and ask for a product change. The issuer may be willing to upgrade you to an unsecured version of the card or a different card altogether. It may be possible even if your credit isnât good yet, but youâve been consistently showing good credit behavior for a year or two. Issuer loyalty often pays off.

Keep the card open

Even if you havenât graduated on to a better card, keep your secured card open after itâs done its job. You may have more exciting cards now â and your credit may be good or excellent â but donât give up on your old secured card (unless it charges fees). You can use it for minor charges, like your Netflix subscription, to keep it active.

Closing a credit card isnât good for your credit, since it could negatively impact your credit utilization and lower the average age of your accounts. Iâd suggest waiting a few years before closing your old card to soften the blow.

Bottom line

Itâs hard to tell how much a secured credit card will increase your credit or how long it will take to build credit using this type of card. There are many factors at play, such as any negative information on your credit report and other types of debt you may currently have.

Still, a secured credit card can be a game-changer. Unexciting as it may seem, it can be a lifeline for poor credit or the first step for credit beginners.

Source: creditcards.com

Qualifying for a Credit Card

How to Apply for a Credit Card With No Credit History

Starter Credit Card

Secured Credit Card

How to Choose Your First Credit Card

How to Apply for a Credit Card

How to Use Your First Credit Card

What Should You Do if Your Application Is Denied?

Things You Need to Know as a First-Time Credit Card User

What If You Are Not Ready to Apply for a Credit Card?

Get a Sofi Credit Card Today and Earn 2% Cash Back

FAQ

What is a good credit limit for a starter credit card?

What are the requirements to apply for a credit card?

Credit Card Meaning

How Does a Credit Card Work?

How Does Credit Card Interest Work?

Types of Credit Cards

Reward Cards

Credit Builder Cards

Balance Transfer Cards

Secured Credit Cards

Travel Credit Cards

0% Introductory APR Credit Cards

Reasons to Use a Credit Card

How to Apply for a Credit Card

Apply for a SoFi Credit Card Online and Earn 2% Cash Back1

FAQ

What are the main differences between credit and debit cards?

How do I choose a credit card?

How long does it take to get a credit card?

At What Age Can You Get a Credit Card?

Tips for Getting a Credit Card When You’re Young

Start Building Credit

Learn the Basics of Financial Management

How to Get a Credit Card If You Are 18 to 20 Years Old

Secured Credit Cards

Become an Authorized User

Apply for a Student Credit Card

Consider Credit Builder Credit Cards

Apply for a SoFi Credit Card Online and Earn 2% Cash Back1

FAQ

Can I get a joint card?

Does a student credit card affect credit score?

What is the limit on a student credit card?

Do you need credit for a secured credit card?

Additional Resources

Best Prepaid Cards for Budgeting

Best Overall: Bluebird by American Express

Best for Kids and Teens: FamZoo

Best for Cash Back: Green Dot

Best for Day-to-Day Money Management: Serve American Express

Best for Investors: Greenlight

Best for Building Credit: Chime Credit Builder Secured Visa

Methodology: How We Select the Best Prepaid Cards for Budgeting

Recurring Card Fees (Annual Fees or Monthly Fees)

Load Fees

Card Type

Built-in Budgeting Tools

Parental Controls

Rewards Program

Interest on Balances

Become a Prepaid Card Expert: Your Questions Answered

Does a Prepaid Card Build Credit?

Which Prepaid Card Can Hold the Most Money?

How Much Does It Cost to Load a Prepaid Debit Card?

What Are the Most Common Prepaid Card Fees?

How to Choose the Best Prepaid Card for Budgeting

Related Articles

Dig Deeper

Additional Resources

The Best Credit-Builder Loans for 2022

Best Overall: Self

Best for Low Payments: SeedFi

Best for Higher Loan Limits: CreditStrong

Best for Comprehensive Financial Services: MoneyLion

Best for Credit Union Fans: Digital Federal Credit Union

Methodology: How We Select the Best Loans for Building Credit

Ease of Application

Credit Check

Apply for a SoFi Credit Card Online and Earn 2% Cash Back¹

Apply for a SoFi Credit Card Online and Earn 2% Cash Back¹