Until a few months ago, I didn’t know the existence of secured credit cards. I’ve never heard of them and I didn’t know how they worked. The only cards I knew back then were debit cards and credit cards.
As you know, a debit card when used to buy something, money is taken out from our bank account to cover the expense. It will not build credit history no matter how much we use them (I used a debit card for many years in the USA for my travel because I didn’t know I can get a credit card and build history with it). On the other hand, when you use a credit card, the bank uses their money to pay for it and then they give you a statement that you need to pay at least part of it, and the rest will incur interest. If you pay the full amount, then you will not pay interest. Interest is only generated if you don’t pay the full amount on your statement (some banks will charge you interest and a fee if you get cash at the ATM).
What is a Secured Credit Card?
I found this type of card in the USA when I started looking at credit so I can build credit history there. Having credit history in the USA is a good thing to have so you can get access to some products and services that people without credit history can’t access or get a big interest rate.
The secured credit card works like this: you give the bank the amount you want your limit to be, let’s say $500 dollars. That money the bank will put it in an account that you can touch until a) you cancel your card or b) the card graduates to an unsecured card. There are some secured credit cards that never graduate to unsecured, so the Bank of America option is a really nice one.
Why not just get a regular credit card or a debit card?
For a long time I used a debit card in the USA but that didn’t give me credit history. Only credit cards will report to the credit bureaus and help build a solid credit history. You also can build credit history by getting other loans like a car loan or mortgage.
Is harder to get a regular credit card if you don’t have credit history, that’s why a secured credit card is a useful option for people that want to start building credit history. This type of card also is used for people that want to rebuild their credit. People rebuilding credit usually got into debt and trouble paying, some even bankruptcy. The great thing about credit history is that you can have a second chance. Nothing reported stay for ever.
One of the best options: the Bank of America Secured Credit Card.
From personal experience one of the best secured credit cards available in the USA is the Bank of America Secured Credit Card.
Some of the great features:
Limits from $300 up to $10,000* dollars
If you read the webpage they say the upper limit is $4,900, but once I had the card I asked about this and they told me that I can put up to $10,000 dollars. There are people putting $5,000 or more and asking for a Visa Signature card.
You can have the secured card with Cash Rewards
If you get the regular secured card you will not get cash back, but you can ask Bank of America to add the Cash Rewards feature, that way you will earn 3% on your gasoline purchases, 2% on groceries and 1% on everything else. There are limits to that, up to $1,500 dollars per quarter on the 3% and 2% categories. If you go over the limit you still get 1%.
Extra cash back if you have a Bank of America account
If you have a checking or savings account with Bank of America and you do a direct deposit from your cash rewards balance to your account you will get a 10% extra bonus. Thanks to that your card will earn 3.3%, 2.2% and 1.1% instead of the regular amounts. The minimum you can cash is $25 dollars and that will give you $27.50 if you deposit that into your BofA account.
Extra one time rewards with selected merchants
There is a program that will give you extra cash back when you register the offer and buy with that merchant. Cash back varies from 5% to 15%, even sometimes other offers. I was able to get 10% cash back when once I ate at Chili’s and is commonly seeing 5% cash back offer on Autozone. These offers do have a specific date to get it or they expire. Many deals come back after a month or so.
The card graduates to a regular card at 12 months
There are other secured credit cards but never change the status from secured card to regular, because of this we don’t get our money back until we cancel the card. Bank of America Secured Credit Card changes to a regular credit card at 12 months (many times even early, with reports at 9 months) and we get our deposit back. This “graduation” is automatic. Some people want the card to graduate early and they ask BofA for early graduation. This process will mark your TransUnion bureau with a Hard Pull that may lower your credit score, so it is best to wait for auto graduation. We will talk more about hard pulls in future articles.
Some of the cons with this card are:
There is an annual fee
This card has an annual fee of $39 dollars. That’s not a lot if you add the cash rewards feature and use your card. I’m sure that with normal use you can get more cash rewards than the AF in one year. There are a lot of card with cash back in the USA without AF, so having one is not good. There are a lot of reports from people that were able to remove the AF by calling Bank of America, but there are others that never were able to make them remove the AF. I’ll report in a future article about my AF.
Adding more money, to increase the limit, will result in a hard pull
Something I don’t like with this card is that if you want to have a better limit and give more money to BofA, they will do a hard pull on your report (TransUnion). Is better to put the right amount as your limit the day you open the account so you don’t get extra HPs on your credit report. Saving HPs will help you in the future when you want to apply for other new regular credit cards.
You can’t access the money until the card insecure
Giving money for your limit is tough for some people, some will say that they can give $300, others can give more, even $5,000 to get a Visa Signature card. You can use that money until you get it back by canceling the card, asking for early graduation or wait for auto graduation. Remember that if we don’t use correctly the card or our credit, they may not graduate the card.
Many times you get a card without rewards
My card was a regular secured card without rewards, but I was able to ask for a product change by chatting with BofA and they sent me a new card with a new number. My card looked like this one (it say Cash Rewards), but there is a new version of it
I’m not US citizen, can I get the card?
Even if you are not a US citizen or permanent resident you can get checking, savings and secured/regular credit cards with Bank of America. You will need:
- Visit a Bank of America branch
- Your passport
- Your US Visa (there are countries that don’t require a Visa to enter the USA)
- Your address in USA (remember to give your permanent address at your home country)
- Open a checking or savings account (recommended if you want the 10% extra cash and with it you can pay do online payments)
- Enough money to not incur in any fee ($300 on savings when I opened the account)
- The amount you want for your limit (at least $300, I give them $1,000)
You don’t need a Social Security Number (SSN), nor Individual Tax Identification Number (ITIN). When/if you get one of those is a good idea to give that number so they can update your record.
Some of the frequently asked questions that I can answer with my experience:
I have read that if you don’t have a SSN you can’t build credit history in the USA, is this true?
Bank of America report your credit information to the 3 big credit bureaus, at least they report 1) your name, 2) date of birth, 3) address in the USA, 4) type of credit card (it will show secured card on your reports), 5) the limit, 6) payments, 7) balance and any other extra information they have (like late payments but you should never be late paying your card!)
Do I have to pay taxes by having a checking/savings account?
Most visitors/temporal residents will not have to pay taxes, you should tell the bank that you are not a resident and they will give you the correct form to sign if your account gives any interest. You should check your visa type and the time you have been living in the USA to know if you need to pay any taxes.
Will the bank report my account to my home country?
There are many treaties between countries about the information that they transfer between them. This is usually to limit money laundry. You should check the laws in your country to know if or what information will be reported.
They always ask for income when I apply for credit, I don’t work in the USA, what should I do?
When they ask you for your income or other information, they trust you with your answers, so always tell the truth. What I do is say that my income is from Mexico and in dollars is X amount a year.
They don’t ask for written proof for my income?
Unless you report a very high income or request a big credit limit they don’t ask for proof. If something in your report changes, they can request income proof and may cancel the card or lower the limit.
To our readers:
Do you have secured credit card options in your home country?
Are you interested on getting a secured credit card in the USA?