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I spoke with 3 banks this morning and they all said that for the time I was on the secured card, they would not report me to the credit unions and companies. They would just keep the score internal to the bank!

Is this the norm with secured credit cards?

Are there some offerings where they also report your credit score, so that I could start building my credit history right away?

Updates : I have some updates on my question after doing a few rounds at stores, banks and CUs.

It seems that college students fall under a special risk category and have some additional rules for their safety.

Students without substantial credit history need to show a proof of income to be eligible for VISA cards. Plain and simple.

Now here is my impressions of stores, banks vs. a CU.

CU's are really there to help you out and listen to your needs. Atleast the two I have been to so far.

The managers at the CU's told me right away that given my scenario, esp. without income, I would be turned down for any type of credit card - be it secured or not.

This was in stark contrast to what I had been told by banks - they had given me an impression that a secured credit card was 100% guaranteed regardless of my history.

Loaded with this information from the CU's I re-visted the banks and stores. As always, they were very enthusiastic about my chances of getting a secured card, even after I repeated my circumstances - they kept on encouraging me to apply for the cards.

The real reason behind the enthusiasm surfaced only after I asked them to give me in writing that they would guarantee me a secured card, because this was exactly the opposite of what I had understood at the CU.

One of the store employees now confided that they get a nice commission for every person they refer for a card regardless of whether the person end up getting a card or not.

Same goes for the banks, I assume.

This means that it's in the self interest for the banks and stores to make me apply for the card even if I keep on getting declined!

Note that every query on my record affects my score in negative way (correct me if I am wrong)

My key takeaway from this : A secured credit card is for you if you have some substantial credit history, even if damaged. It's not for people starting out, esp. if they have no income.

I am discussions with a few credit unions regarding how I can go about building my history given my situation. I am still open to suggestions though!

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    Just to nickpick: they would report you to credit reporting agencies in the US. Credit Unions are bank like institutions that you should visit and ask them about how you can build your credit.
    – MrChrister
    Jan 19, 2011 at 20:52
  • I am talking about US banks. Why does the bank tell me otherwise?
    – studentOfFinance
    Jan 19, 2011 at 21:57
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    Banks are not Credit Unions and vice versa. Credit Unions are owned by their members and have different business goals from banks. A bank would never suggest you visit a credit union because they compete in the same market. Visit a real credit union as ask about starting your credit history with them.
    – MrChrister
    Jan 19, 2011 at 22:02
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    @MrChrister : Oh - you are asking me to look for a secured card from a credit union?
    – studentOfFinance
    Jan 19, 2011 at 22:09

5 Answers 5

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It is possible (since the banks tell you so) that you won't get a credit history with a secured card. My understand of secured cards is that after a period of time (12 to 18 months) you will be eligible for a normal CC. (Sometimes automatically.)

The normal credit card will begin building your history.

To skip this, a better alternative to a bank offered secured credit card is a product from a credit union (http://www.ncua.gov/) where you open a CD to back your credit card.

There is no law or rules about how to get started with credit other than some age restrictions about who can have a card. Your only option is to shop around with lots of credit unions (or banks) and find who has a product for you. Try online only banks as well.

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  • Your suggestion regarding CUs has taken me on a journey where I see MANY in my area and all offering no annual fees on secured cards and very tempting rates. It all seems so good to be true that it has made me afraid. Can I trust there CU's? How do I trust them? I have never heard of them before!
    – studentOfFinance
    Jan 19, 2011 at 22:18
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    You can trust Credit Unions. They look and feel and operate just like a bank, have backing from the federal gov't like a bank, but have goals of helping their members rather than the stock holders. Banks have bigger marketing budgets and no size or membership restrictions, which is why you know about banks and not credit unions.
    – MrChrister
    Jan 19, 2011 at 22:59
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    I cannot thank you enough for introducing me to CUs. Without them I am not sure how I would have learnt what I have. I am discussions with a few credit unions regarding how I can go about building my history given my situation. Thank you.
    – studentOfFinance
    Jan 21, 2011 at 19:32
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When I first moved to the US, I was stubborn and didn't want to put up the money for a secured card out of principal (nor did I have the savings)...

One particularly helpful banker recommended I'd try the department stores, and Macy's was kind enough to give me a $500 credit limit (on their most basic card) after I showed them my bank statement and a utility bill. Six months of diligently shopping at Macy's gave me enough history for Providian (now bust, they were known for giving cards out to just about anyone at crazy rates) to give me a 2K limit at 24%, after which I was quickly able to improve my credit score and get more credit, better rates etc.

This was before the sub-prime crisis of course, so things may have changed now. Still, it may be a good alternative way of building credit if you don't want to go down the secured CC route.

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    Good idea. I didn't even think about store cards. Granted, as you point out, that may not work as easily these days. However, if he can get one at a store he frequents and he manages it wisely, it could be useful.
    – George Marian
    Jan 20, 2011 at 15:35
  • I have some updates on my question after doing a few rounds at stores, banks and CUs.
    – studentOfFinance
    Jan 21, 2011 at 19:17
  • @Korneel : I have an update. I kept your suggestion about Macy's IN MIND AND followed the same path you took to procure the store card and it worked! Although they gave me a limit of $100, it atleast reports to my credit history. My questions are : 1. does the rule of 35% of credit limit for a good score apply for even such small cards? 2. How frequently and for how long do I need to shop at Macy's for me to have some confidence that my score is now much better to retry for the "real cards"?
    – studentOfFinance
    Feb 8, 2011 at 19:58
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    @studentOfFinance That's great! Congratulations. The following answers are my best guesses: 1/ I would try and keep it at that just to be safe. 2/ I shopped at Macy's at least once a month and would pay off the card in full each month for about 6 months before I applied for a real card. But that was when banks were giving them out a lot easier. Regardless, after a few months I would ask them to increase your credit limit. Ah, the things we do to obtain credit... On the plus side, Macy's does have some crazy sales (particularly if you charge to a Macy's card).
    – Korneel Bouman
    Feb 8, 2011 at 20:09
  • @Korneel : 1. I am already ~80% near the limit this month as there were some crazy sales, but I usually do not shop that at Macy's every month. Will I be safe if I keep my purchases around 35% most of the time but close to the limit on 3 -4 months a year - esp. around large sales and holidays? 2. Macy's do no report the credit limit of the card (from what I read on the interwebs) - is that a good or a bad thing? Do you have any information on this?
    – studentOfFinance
    Feb 9, 2011 at 4:40
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Bank of America has secured credit card. After one year you will be eligible to switch to a regular one. I just closed my secured CC from BoA after one year of using it, because they approved a Cash Back CC for me. And during that first year of using secured CC it was always reported.

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  • It seems that college students fall under a special risk category and have some additional rules for their safety. Students without substantial credit history need to show a proof of income to be eligible for VISA cards. Plain and simple. A secured credit card is for you if you have some substantial credit history, even if damaged. It's not for people starting out, esp. if they have no income.
    – studentOfFinance
    Jan 21, 2011 at 19:37
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The Bank of America secured CC has been mentioned a few times on a couple of forums I'm on as way to build your credit history.

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  • One of the banks I spoke with is BoFA. Why does the bank tell me otherwise?
    – studentOfFinance
    Jan 19, 2011 at 21:58
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    @studentOfFinance - Sometimes in huge companies not every employee is fully aware of the rules. Additionally, sometimes rules change and not every reads the memo. The card linked very clearly says it helps build your credit.
    – MrChrister
    Jan 19, 2011 at 22:10
  • @MrChrister : It makes me hesitant to use a bank where the employees are not well informed. Also, what the banker told me is exactly what you have repeated in your answer's first 2 paragraphs.
    – studentOfFinance
    Jan 19, 2011 at 22:20
  • It seems that college students fall under a special risk category and have some additional rules for their safety. Students without substantial credit history need to show a proof of income to be eligible for VISA cards. Plain and simple. A secured credit card is for you if you have some substantial credit history, even if damaged. It's not for people starting out, esp. if they have no income.
    – studentOfFinance
    Jan 21, 2011 at 19:37
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    I would think it's the "no income" that is an issue, not the "starting out" part. These cards are generally recommended for building a credit history on some of the immigration forums I'm on.
    – Timo Geusch
    Jan 21, 2011 at 20:32
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I know it has been a little while, but I stumbled across this and thought I could help. A secured card, regardless of who issues it is for those who have either no credit history or bad but not to bad credit history. Most major companies offering secured cards do report within the first few billing cycles. Capital 1, Bank of America and Orchard all do. The problem is that even with a secured card you have to have to have an income to make the payments with. Previously college students could use household income the same way that married couples did when they applied for a card. Here is the problem that was created with that: Mom and Dad do not intend to repay your credit card but you get a card based on their $90K annual income rather than your own $7 annual part-time income or even 0 income. One of three things happened when this was common the first and the ideal was that you pay responsibly and establish a credit history that allows you to go into the world with a few years of repayment history under your belt when you graduate, the second and one of the two more likely is that you default and get yourself into a bit of financial trouble that you eventually crawl out from under, the third and most devastating is that you do well for a little while and build larger and larger limits (because based on your parent's income you can afford them)and then you default and you either find your self in bankruptcy or going to your parents for help with debts they never knew you were taking on before you ever finish school... this may have even forced you to drop out to repay your obligations. Now, to prevent this, in order to get credit young people may not use household income. They must have a cosigner in order to be approved on their parent's income. This is for your protection. Get a job so that you have some money and you will be approved for the secured card with a deposit of about $300 with Capital 1. In about 6 months after that you should, with responsible payments be able to get a Student card with a low limit that corresponds to your part time income. You can include income from Grants and Scholarships if they are applied to living expenses but not from loans and not for the portion that pays your tuition and for your books. Only the amount available for making your payments. A work study would be allowable if the money is available for living expenses to be applied to your payments. Only except a small limit right now and do not charge more than 25 percent of your limit or carry a balance. Pay in full until you are out of school and working in the real world and eligible for low interest cards. Even then keep balances low. Good luck and hope it helps.

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