Capital One bring secured credit cards to the UK
CAPITAL One have launched a secured credit card, the UK's first.
The deals have been popular in the US for a while but the jury's still out on whether they're a welcome addition to the UK market.
To activate a secured credit card users need to provide a security sum or deposit payment. It's hardly initially attractive and, indeed, up until recently the Capital One Secured Credit Card was an 'invitation only' card, offered only to those applicants that had been refused other offers.
How does it work?
Once the security sum has been paid, secured deals work just like any other credit card: they can be used to make purchases up to the credit limit.
However, since interest rates are high and limits very small, it's best to repay the balance in full.
By using the credit card and paying off the balance immediately on a regular basis, cardholders are able to demonstrate that they can manage their money and credit responsibility.
Once they have been a secured card holder for a while, it's possible that the card provider will upgrade them to a 'better' card.
A guaranteed credit card?
However, note that secured cards are certainly not guaranteed credit cards.
Applicants will be subject to a credit check - just as with any other credit card - and although those with poor histories may be accepted, it's up to the provider to decide.
Those that have been declared bankrupt within the past 12 months are not likely to be accepted to Capital One, for example.
As we've covered before, there is no way to guarantee acceptance for any credit card so if it looks too good to be true, it probably is.
Sizing up secured
So secured credit cards are, in some ways, not very different from other bad credit options. What sets them apart?
Secured vs. 'bad credit'
Bad credit or credit builder cards offer similar benefits to cardholders as the secured credit card but they don't require a security sum or deposit payment.
For many, that's preferable.
Given that it's highly likely that those with a poor credit history will be in a precarious financial position, it feels fairer that they shouldn't have to pay out money in order to improve their standing, just demonstrate good behaviour.
Secured vs. prepaid
Perhaps the most similar thing we have to a secured card on the market already is the CashPlus prepaid card's credit builder facility, see our full article here.
Like a secured card, those that want to build credit pay up.
In the case of CashPlus, the payments show up as a 'completed loan' after 12 months but, unlike a secured card, card users will never see that money again when they close the account.
All in all, secured cards seem to plug the gap between prepaid cards and 'bad credit' credit cards, although we're not sure it's a gap that really needs to be plugged.