Can You Be Denied a Secured Credit Card?

If you have applied for a secured credit card, you may have been surprised if you got denied, and may be wondering: can you be denied a secured credit card? We will answer this question in much detail below.

Can You Be Denied a Secured Credit Card?

Yes, you can be denied a secured credit card because credit card issuers often review your credit report prior to approving you. If your credit report contains red flags, such as a history of missed payments, bankruptcy, collection accounts, insufficient income, or other negative items, you may be denied a secured credit card. Card issuers have requirements even for people applying for secured credit cards. If you meet the requirements of income, credit score, and existing debt, you will be approved, if not, you may be denied.

That said, if your secured credit card application was denied there are some steps that we will share with you that will improve your chances of being approved later.

So, if you were denied a secured credit card, you should search for a different secured credit card with a higher approval rate. Not all secured credit card issuers check your credit, so if there are negative items on your credit report, search for secured credit cards that do not require a credit check.

That said, most secured credit card issuers will require your name, address, social security number, and a security deposit for the secured credit card. If you cannot provide all of this information, you are unlikely to qualify for a secured credit card.

Generally speaking, secured credit cards are significantly easier to be approved for since you’re eliminating the risk the credit card issuer is taking when you place a security deposit for the card. Typically, your security deposit determines your credit limit. For example, if you place a security deposit of $500, your credit limit will be equal to your security deposit ($500).

Also, when you’re denied a secured credit card, your card issuer is required by law to send you an adverse action notice explaining why the information in your credit report resulted in you being denied. Oftentimes, this is provided via a letter in the mail, an email, or via a phone call.

Knowing why you were denied shows you the weakness in your credit report that resulted in your denial, allowing you to take steps to improve the weaknesses of your credit.

Why Was Your Secured Credit Card Application Denied?

Here are some reasons why your secured credit card application was denied:

  1. Ability to Repay Debt – To be approved for any credit card, including a secured credit card, you as the application, must demonstrate that you have the ability to repay the money you’re going to borrow on your credit card. This means having sufficient income to repay your debt. If you do not have sufficient income to repay your debt, your secured credit card application will be denied.

  2. Insufficient Funds For the Deposit – Your secured credit card application may have been denied if you did not provide the card issuer with sufficient funds for the security deposit. Security deposits are usually mandatory for secured credit cards. If you do not have the funds for a secured credit card, you should save up for the security deposit as you must pay it before a credit card is issued to you. Your security deposit will determine your credit limit.

  3. Negative Items On Credit Report – Your secured credit card application may have been denied because there are negative items on your credit report, such as missed payments, collections accounts, bankruptcy, or other negative items that disqualified you from being approved for a secured credit card.

  4. Extremely Low Credit Score – Although secured credit cards are marketed and cater to persons with bad credit, your credit score may be too low to qualify you for a secured credit card. If this is the case, you should try applying for a secured credit card that does not require a credit check.

What Should You Do If Your Secured Credit Card Application is Denied?

Here are some things that you can do if your secured credit card application is denied or rejected:

1. Apply For a Secured Credit Card With Your Own Bank

If you have a checking and/or savings account with a bank that issues secured credit cards, you may want to try applying for a secured credit card with that bank. Having a good relationship with your bank can improve your approval odds. If your bank denies your secured credit card application, you should try applying for a secured credit card that has more flexible approval requirements, or you can try applying for a secured credit card with your local credit union. Credit unions are non-profit organizations and therefore have more flexible standards than major banks and card issuers.

2. Find a Different Secured Credit Card

If you were denied a secured credit card, you may want to try finding a different secured credit card that does not require a credit check or a secured credit card with lower approval requirements than the one you applied for.

3. Become An Authorized User

If your secured credit card application was denied, you should explore the alternative of becoming an authorized user on another person’s credit card. When you become an authorized user, the primary cardholder’s card issuer will provide you with a credit card with your name on it. This credit card is linked to the primary cardholder’s account, and the primary account holder is responsible for making payments on the account. As an authorized user, the credit card will appear on your credit report along with the credit history behind the card. So, if the card has a good history, you will benefit from that credit history.

4. Improve Your Credit

If you have been a secured credit card or any other type of credit card, you should improve your credit by making all of your payments on time, reducing the balances on your accounts, refraining from sending too many credit card and loan applications within a short period of time, keeping old accounts, and periodically reviewing your credit report. If you follow these tips, you will improve your credit, creating better approval odds for credit cards and loans in the future.

5. Credit Builder Loans

If your secured credit card application was rejected and you need access to money and tools to build your credit, you should explore the option of applying for a credit builder loan. With a credit builder loan, the proceeds of the loan are deposited and held in a bank account while you make payments on the loan. After you’ve repaid the loan in full, you will gain access to the funds. Credit builder loans are a great tool to build credit in order to qualify for secured and regular credit cards in the future.

How Does a Secured Credit Card Work?

A secured credit card works the same was as does a regular unsecured credit card. The only major difference between the two is that to be approved for a secured credit card, a person must place a security deposit in the form of a cash payment to be approved for the credit card. The security deposit that’s placed with the card issuer usually determines the person’s credit limit. For example, if you place a $500 security deposit, you will be issued a secured credit card with a credit limit of $500.

Secured credit cards are marketed to those who have poor credit or are beginning to build their credit. However, approval for secured credit cards is not guaranteed, especially for secured credit cards where card issuers review your credit report. If you’re having trouble finding a secured credit card, search for a secured credit card that does not require a credit check. This is especially helpful if there are negative items on your credit report that may subject you to be being denied for one.

If You Were Denied a Secured Credit Card, Improve Your Credit Score Before Applying Again

  1. Payments – If you want to improve your credit score after being rejected for a secured credit card, the biggest item that will help your credit is your payment history. Making all of your credit card and loan payments on time is essential to improve your credit score as it accounts for 35% of your credit score. A single missed payment can cause a significant drop in your credit score, so make sure to make all of your payments on time.

  2. Account Balances – Your credit utilization (how much of your available credit you’re using) accounts for 30% of your credit score, so reducing the balances on your credit card and loan accounts will improve your credit score. Reducing your account balances will improve the possibility that you’ll be approved for secured credit cards and regular credit cards.

  3. Hard Inquiries – Keeping hard inquiries to a minimum will help your credit score as hard inquiries are factored into your credit score. So, do not apply for credit cards or loans that you do not need or are unlikely to be approved for. This minimizes the number of hard inquiries on your credit report to help your credit score.

  4. Old Accounts – Keeping old accounts that are in good standing open will help your credit score because your account age impacts your credit score. So, if you have an old account that has a good credit history, keep it open even if you rarely use it.

  5. Review Credit Report – If you’re not already in the habit of periodically checking your credit score, you should be to uncover any negative items that are hurting your credit score. If you find negative items, this presents a good opportunity to address the negative item to reduce its impact on your credit score. If the negative item does not belong to you, you should dispute it to have it removed from your credit report.

Bottom Line

At this point, you know that you can be denied a secured credit card if you do not have the necessary income to pay off the card, if your credit report contains negative information, or if you do not have required credentials to verify your identity. If you have any questions or comments, please feel free to leave them in the comments section below.