What Is A Secured Credit Card?

People who do not have a credit history, or who have bad credit problems, will have a chance to prove they can handle credit, and qualify for a regular credit card by utilizing a secured credit card.

Citicorp is testing the secured credit card field with certain requirements.

An applicant must acquire an 18 month certificate of deposit at a simple interest rate of 7%. The minimum deposit is $300, and the maximum is $500.

The CD now serves as collateral, and Citicorp issues the depositor a standard Visa or MasterCard with a credit line equal to the deposit. This customer pays the same annual fees and finance charges as all other Citicorp customers.

If, after the 18 months there is no delinquency or problem with the card, the customer may cash in the CD and will keep the credit card on an unsecured basis.

According to one credit corporation, 70% of applicants for traditional bank cards are turned down.

It is expected that others will enter the secured credit card market. But experts are a little skeptical of their success. In the first place, it is unclear how many of the 30 to 50 million people believed to be in need of credit can afford the cash for the certificate of deposit.

And the increased risk for the issuer is whether these cardholders will exceed their limits, and will then be unable to pay their credit card bills.

This will be an interesting study to follow.

Copyright © 1991 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 2, No. 10, 11/91