Will Applying for a Secured Card Hurt Credit?
Many people with poor or limited credit may wonder if applying for a secured credit card will negatively impact their credit scores. The secured card application process does involve credit checks. However, applying by itself will generally not hurt your credit.
How Secured Card Applications Work
Like regular credit cards, secured card issuers will check your credit report and score when you apply. This allows them to verify your identity and evaluate your creditworthiness.
Hard inquiries from new credit applications can lower your credit scores temporarily by a few points. But as long as you apply for secured cards sparingly, the effect is usually minimal.
Getting approved for the secured card provides access to credit you can use responsibly to build your credit history. This positive effect outweighs any minor dings from applying for the account.
Types of Credit Checks
The main impact on your credit comes from banks performing a hard pull on your credit reports. There are two categories of credit checks:
A hard inquiry occurs when a lender checks your credit report when you apply for new credit. Hard pulls can negatively impact your credit score but the effect is small.
All credit card applications involve a hard inquiry to evaluate the application. This includes both secured and unsecured cards.
Soft inquiries are credit checks that do not affect your credit score. These include checks by employers, your own requests to check your credit, prescreened credit offers, and some promotional inquiries.
Soft inquiries show up on your credit reports but credit bureaus do not factor them into your scores. Only apply for secured cards that require a hard credit check, not just soft inquiries.
Impact of Inquiries When Applying
The number of recent inquiries and how many new accounts you open are important factors:
- Each individual hard inquiry when applying for credit dings your score just a few points.
- Applying for several new credit cards in a short period can lower your score more significantly.
- Spreading applications out over a longer timespan minimizes the impact.
As long as you limit secured card applications to one or two within a period of 6-12 months, the effect on your score will be minor.
Checking for Pre-qualification
Some issuers allow you to check if you pre-qualify for their secured card offers without a hard inquiry on your credit:
- Pre-qualification uses soft inquiries that do not affect your scores.
- This allows you to check your chances before completing a full application.
- Pre-qualifying also shows the credit limits and deposit amounts you may qualify for.
- If the terms look unfavorable, you can avoid applying for that card.
Checking for pre-qualification lets you explore potential secured cards without risking hard inquiries. Submit full applications only after pre-qualifying for terms you find acceptable.
Getting Denied for a Secured Card
Very few applicants get denied for secured cards since the required security deposit protects the issuer from risk. But getting denied after applying can still happen in certain situations:
- Failing to meet the minimum security deposit requirements
- Submitting an incomplete application with missing information
- Having past unpaid debts or accounts in collections
- Declaring recent bankruptcy or foreclosure
- High debt-to-income ratios and poor payment history
- Applying for multiple new credit accounts in a short timeframe
If denied, wait at least 6 months before reapplying and focus on improving any negative credit factors first. Avoid applying again right away.
Checking Your Credit with Minimal Impact
You can monitor your credit scores by using services that provide access to credit data without hard inquiries:
- Credit Karma offers free access to VantageScore credit scores.
- Many banks provide free credit scores and reports for account holders.
- AnnualCreditReport.com allows you to obtain your three yearly free credit reports.
Monitoring your scores regularly this way allows you to check for impacts from new applications while minimizing hard inquiries.
How Secured Cards Help Credit
Any minor dings from secured card applications are offset by the positive benefits of responsible card usage:
- Making on-time monthly payments builds positive credit history.
- Maintaining low credit utilization keeps scores optimized.
- Showing the ability to manage open revolving credit improves your credit mix.
- After 6+ months of responsible use, you can request graduation to unsecured credit.
Stay focused on using your secured card properly after getting approved and you will build credit scores over time.
Alternatives to Apply For Instead
Those concerned about inquiries can consider the following alternatives to secured cards:
- Retail store credit cards often approve applicants more readily.
- Student credit cards offered by many issuers help young borrowers.
- Become an authorized user on a family member’s credit card.
- Credit builder loans function similar to secured cards for building credit.
However, these options come with their own potential drawbacks compared to secured cards.
- Hard inquiries from applying can lower your credit score slightly but the effect is generally minimal.
- Check for pre-qualification opportunities to avoid inquiries from applications unlikely to approve.
- Limit applications to 1 or 2 secured cards in a 6 to 12 month period.
- Any minor score drops are offset by ongoing responsible card usage over time.
- Getting denied can happen but is rare. Wait 6 months before reapplying if needed.
- Alternatives like retail cards exist but secured cards remain the easiest revolving credit option.
While credit checks may ding your score a point or two initially, ultimately getting approved for a secured card gives you the chance to demonstrate responsible usage and rebuild credit gradually. Limit applications and use your card properly once approved.