You’ve just been informed by the bank via text or email that your credit card application got declined — and you’re offered a secured credit card, maybe an Instacard, Fast Track, or Express Start.
Now you’re probably asking, “What the heck is a secured credit card? Is it also a credit card?”
Yes, and no — and you will find it out as I give you a semi-comprehensive discussion on what a secured credit card is in yet another interesting and educational article on credit cards.
Before you read on, you might want to check first the — 12 Reasons Your Credit Card Application Got Declined (Plus Tips Inside) — and find out what possibly went wrong with your application.
Now here’s a quick outline of the long discussion ahead:
- What is a Secured Credit Card (SCC)?
- Main Reasons to Get a Secured Credit Card
- Pros (Advantages) of Secured Credit Cards
- Cons (Disadvantages) of Secured Credit Cards
- Best Secured Credit Cards in the Philippines
- How to Apply for a Secured Credit Card
- How to Use a Secured Credit Card
- How to Cancel a Secured Credit Card
Quick Summary. The best secured credit cards available in the Philippines for you to choose from are — RCBC Instacard, Security Bank Fast Track, BPI Express Start, Metrobank Save & Swipe, BDO Secured Credit Card, China Bank Secured Credit Card, and AUB Secured Credit Card.
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What is a Secured Credit Card?
A secured credit card (SCC) is a credit card in all aspects, except for the hold-out cash deposit which serves as a collateral and thus, makes it ‘secured.’
That hold-out cash deposit, also called a security deposit, is a security obtained and further used by the bank should the cardholder default on payments.
It simply freezes in an account, normally a savings account or time deposit, where it may or may not be earning an interest and cannot be withdrawn while the secured credit card is still active or until cancelled.
The credit limit, which is the maximum amount of credit allowed for spending on the card, is also based on the hold-out cash deposit, sometimes lower by 5 to 20 percent, i.e., 80 to 95 percent of the total deposit.
However, the cardholder may increase this limit anytime decided by adding more to the hold-out cash deposit, hence no card issuer-initiated credit limit increase.
Should the cardholder decide to cancel the secured credit card, the release of the hold-out cash deposit normally takes 30 to 60 days. This is for the bank to allow the posting of late billings and clear the cardholder from all financial obligations incurred with the card.
Interestingly, there are banks that promise an easy and automatic conversion of secured credit cards to regular unsecured (without cash collateral) credit cards after keeping the accounts in good standing for at least one year, sometimes even earlier.
In most cases, the same benefits and privileges of regular credit cards are enjoyed with a secured credit card, even finance charges and fees actually.
2 Main Reasons to Get a Secured Credit Card
There are two primary reasons why people should apply for and avail secured credit cards — build (thin-file borrowers) and rebuild (delinquent borrowers) credit scores.
Credit score, which is primarily based on a credit report issued by a credit bureau, is a three-digit numerical expression between 300 to 850 that rates a consumer’s creditworthiness, where the higher the score, the better the borrower looks to potential lenders.
It is normally computed based on weights assigned to credit factors which include — payment history, amount owed, length of credit history, new credit, and credit mix.
Based on TransUnion Philippines credit scoring for example, a very poor credit score is in the range of 300 to 600. A score of 601 to 720 is fair. And an excellent score is in the range of 781 to 850.
These ranges however don’t necessarily indicate that the borrower will or will not be approved for credit as there are those with scores within the excellent range that still find it hard getting approved for a credit card.
Just an important take here, credit score should matter now to many Filipinos.
[a] Build Credit (Thin-File Borrowers). In terms of credit scoring, the term ‘thin file’ pertains to a credit report with little or no credit history at all. Thin-file borrowers then are those who are just starting out and may have never taken out any loans or credit cards yet.
If you are then a thin-file borrower, your credit card application may just get declined as the credit card issuer finds it hard to assess your creditworthiness amidst the insufficiency or absence of records.
Getting a secured credit card then is a surefire approach to start building your credit, i.e., of course with responsible on-time payments of balances through the statement periods.
Interestingly, secured credit cards may already be used as referral cards for regular credit card applications in a matter of months, although most say, at least six months to a year.
[b] Rebuild Credit (Delinquent Borrowers). Negative items and bad credit information such as late or missed payments, accounts sent to collection agencies, accounts not being paid as agreed upon, or bankruptcies stay on credit reports for approximately seven years.
If you have any of these in your credit history, and you want to apply for a new credit, say with a credit card, the probability of getting approved is very small, or as in nearly zero. You need a recent positive entry that will make the credit card issuers reconsider their decision.
Good thing, you can do this with a secured credit card. It takes time, months or years of on-time payments maybe, but it will surely pay off, especially if your secured credit card issuer automatically converts it to a traditional unsecured credit card after you establish a good credit history with them.
10 Pros (Advantages) of Secured Credit Cards
Building and rebuilding credit are just two of the main reasons or advantages of getting a secured credit card, as already mentioned, and there are more than what you might have just expected:
[1] You get a credit card. As mentioned, it’s a credit card in all aspects except the hold-out cash deposit. Meaning, you experience and enjoy the convenience and all other benefits of an unsecured credit card.
[2] You build or rebuild your credit over time. Whether you are a thin-file credit consumer or a delinquent borrower, getting a good secured credit card will surely build or repair your credit. It takes just months or a year maybe before you start to see the positive impact on your credit score.
[3] You get easily approved. Almost all banks advertise a hundred percent or guaranteed approval of a secured credit card application except for some cases where derogatory record in the same bank counts a big factor. It is thus better to apply for this in a different bank.
[4] You’re not required any income documents. You don’t have to present employment certificates (COEs), BIR tax forms, payslips, and other income documents which may be hard to produce especially for some who belong to the informal economy. In most cases, accomplished forms and valid IDs are enough.
[5] You earn rewards and enjoy perks. Just like with the regular credit cards, you also earn rewards such as points, miles, cashbacks, and other perks. All of these depend on the type of credit card given though.
[6] You decide on your credit limit. If you worry about overspending with your card, you have the full control over the credit limit. You may increase or decrease your limit based on your spending needs and preferences.
[7] Your security deposit is used if you default on payments. You don’t have to worry about worst-case scenarios such as late payments as the hold-out cash deposit will be used upon default. However, this will still get reflected on your credit report and thus, hurt your credit score.
[8] You can use it as a referral card. In just a matter of months or a year, you may already use your secured credit card as a referral card for your regular credit card applications with other banks. There are those who even get approved after one to three months of having a secured credit card.
[9] Your security deposit may still earn interest. While your security deposit silently freezes in your savings account, it may also earn an interest. You better check with your bank if this is part of the product’s terms and conditions.
[10] You don’t have to deal with debt collection agencies. If you default on your payments, your account will not be forwarded to debt collection agencies; rather, your security deposit will be used to pay off your outstanding balances. Again, this will still be reflected on your credit report though.
10 Cons (Disadvantages) of Secured Credit Cards
To create a sense of balance, these are also the 10 possible disadvantages of getting a secured credit card:
[1] You need a security deposit. You need to cash in a certain amount for the hold-out cash deposit. Most banks require at least PHP10,000 for this. It may be a second thought to allocate for this if you’re just living paycheck to paycheck.
[2] Your credit limit is usually lower than your security deposit. Although there are banks that offer a hundred percent of the security deposit as the card’s credit limit, most give only 90 to 95 percent. Others even allow just 80 percent of the deposit. Therefore, you may need more cash if you want a higher credit limit.
[3] Your security deposit is but frozen in your account. Your security deposit still appears on your account as you check on it, for example via an app, but you just can’t withdraw it. In other words, you can’t get your money even in emergency cases.
[4] Your credit limit increase requires additional security deposit. Your bank won’t initiate to give you any credit limit increase. You can only have it by increasing the hold-out security deposit, which means you need to add more cash to it on your own.
[5] You may pay higher interest rates. It’s not always the case though, but your bank may impose higher interest rates or finance charges as compared to other regular unsecured credit card products.
In some other cases, secured credit cards even come with lower interest rates, part of promotions.
[6] Your security deposit may not earn an interest. You may just be at a disadvantage for letting your security deposit sit in the account without earning any interest for the next months or years, i.e., if the terms and conditions say so. Better check first with the bank.
[7] Your missed payments will still hurt your credit score. Although your account will not be forwarded to debt collection agencies if you miss paying your outstanding balance on time because of the security deposit, this does not mean that your credit score will not be negatively affected. It will still be.
[8] Security deposit release usually takes months after the initiated cancellation. Most banks impose a 60-day period, or even longer, for the release of the hold-out security deposit after your initiation of cancellation. Sometimes, you even have to make multiple follow-ups with the bank for its on-time release.
[9] You may not be assured to have it converted to a regular credit card even after a year. Other banks promise automatic conversion; others just don’t even after a year of on-time payments and good standing.
It’s a big surprise if your bank will call and offer you a regular credit card after six months of maintaining a secured credit card with them. It’s possible, they say.
[10] You don’t have much of choices. Your bank normally decides for the type of credit card to give you. You’re just lucky and thankful if you’re given something that suits your spending needs and preferences, or if they will allow you to get a replacement or an upgrade.
Although advantages and disadvantages are presented in equal numbers here, I should say that advantages still outweigh the disadvantages particularly in terms of building credit and the chances of getting regular credit cards in the future, if that is just the main goal.
7 Best Secured Credit Cards in the Philippines
[1] RCBC Instacard. It is a secured credit card offered by Rizal Commercial Banking Corporation (RCBC) through its card issuer, RCBC Credit Cards (previously, RCBC Bankard) that comes with these features:
- guaranteed approval regardless of past credit history, except for those who have a delinquent RCBC Credit Card account,
- minimum hold-out deposit amount of PHP10,000 or 2,000USD,
- credit limit assignment equivalent to 95 percent of hold-out deposit,
- waived card membership fee for the first 12 months and lower than usual for the succeeding months,
- release of hold-out deposit after 60 days upon cancellation, and
- low revolving fee of 2 percent.
[2] Security Bank Fast Track. It is a secured credit card tied up with either a savings or a time deposit account offered by Security Bank Corporation (SBC) that comes with these features:
- guaranteed approval with an interest-earning savings or time deposit account,
- minimum hold-out amount of PHP15,000 for a savings account and PHP100,000 for a time deposit,
- credit limit assignment equivalent to 80 percent of the hold-out amount,
- waived annual membership fee for the first year, and
- fast application processing in 3 banking days upon receipt of documents.
[3] BPI Express Start. It is another secured credit card in bundle with either a savings account or a time deposit offered by the Bank of Philippine Islands (BPI) that comes with these features:
- guaranteed approval with a savings or a time deposit account,
- minimum hold-out amount of PHP10,000 for a savings account and PHP50,000 for a time deposit,
- credit limit assignment equivalent to 80 to 90 percent of the hold-out amount,
- application processing in around 2 weeks, and
- easy conversion to a regular credit card after one year (as per client experiences shared online).
[4] Metrobank Save & Swipe. It is a starter card requiring a savings account offered by Metropolitan Bank and Trust Corporation (MBTC) that comes with these features:
- guaranteed approval as tied up with a savings account,
- minimum hold-out amount of PHP12,000, and
- credit limit assignment equivalent to 100 percent of the hold-out amount.
[5] BDO Secured Credit Card. It is a secured credit card guaranteed by a savings or a time deposit account offered by BDO Unibank, Inc (BDO) that comes with these features:
- guaranteed approval with a savings or a time deposit account,
- minimum hold-out amount of PHP10,000,
- credit limit assignment equivalent to 90 percent of a peso deposit and 80 percent of a dollar deposit, and
- release of hold-out deposit after 60 days upon cancellation.
[6] China Bank Secured Credit Card. It’s a secured credit card designed for new and existing China Bank depositors who are seeking to build or rebuild their credit history, offered by China Banking Corporation (Chinabank) and comes with these features:
- guaranteed approval with a peso or a dollar deposit,
- minimum hold-out amount of PHP30,000 for a peso deposit and 750USD for a dollar deposit, and
- credit limit assignment equivalent to 85 percent of a peso deposit and 70 percent of a dollar deposit.
[7] AUB Secured Credit Card. It’s a secured credit card guaranteed by an account deposit with Asia United Bank Corporation (AUB) that comes with these features:
- guaranteed approval with a deposit account,
- minimum hold-out amount of PHP20,000 and maximum of PHP10M,
- credit limit assignment equivalent to 80 percent of the hold-out amount, and
- processing time of 7 to 10 banking days.
How to Apply for a Secured Credit Card
It’s easier to apply for a secured credit card if you already have an existing savings account with the bank; otherwise, you need to process both upon your branch visit. Suppose it’s the case, here are the usual steps, also based on my experience when I applied for an RCBC Instacard:
[1] Visit the bank and head over to the New Accounts section. Simply tell the bank personnel that you want to avail a secured credit card. If they’re not familiar with the term (as ironically shared in other posts), tell them it’s a credit card that comes with a hold-out or security deposit.
Before you go to the bank though, you might want to check the available and offered regular credit cards on their website first because you might be asked about the type of card that you want to receive upon your visit. There is no assurance though about the type of card.
[2] Accomplish the forms and present the requirements. You will then be given some forms to accomplish which usually include — a Secured Credit Card Application Form, a Savings Account Opening Form, a Holdout Agreement Form, and a Deed of Assignment. You will also be asked to present your valid IDs and the security cash deposit.
[3] Wait for the approval and delivery of your secured credit card. The bank personnel will give you the important details regarding your application, or normally, they’ll just contact you to make a follow-up on this.
Your ATM card for the savings account may also be for pick-up after a week or two. Better ask all questions then before you leave.
In my experience, I was even emailed by the bank manager herself for some scanned copies of my valid IDs. Also, it may take weeks or even a month before your secured credit card gets delivered right to your doorstep.
How to Use a Secured Credit Card
After your receipt and successful activation of the physical card, enroll it to the mobile app for easy monitoring of your spending and payments. Don’t forget to sign on the back of your card.
As you try to use it online, you will be required to provide the 16-digit card number, the expiration date, and the CVV/CVC, sometimes with your name as it appears on the card.
Your card’s CVV/CVC and transactions’ OTPs are for your eyes only, and not to be shared to anybody else (except in some secure payment portals).
If you are paying over the counter, simply present it to the cashier. You also need to sign some receipts. Don’t let the card slip out of your sight.
Read also this article — 6 Common Credit Card Scams in the Philippines (Facebook Stories) — and find out more of these basic credit card security measures.
[1] You can use it to order food online. If you’re a foodie, or you just don’t have time to cook dinner, you can use your secured credit card to order food online, through GrabFood or FoodPanda maybe.
As soon as you register and assign it as your default payment method on the app, every food order gets charged to the card.
[2] You can shop online. Just the same as with the food delivery apps, you can register your secured credit card on Lazada, Shopee, Zalora, and other e-commerce platforms as another payment method. You just need to input your CVV/CVC every time you make a purchase, part of security.
[3] You can pay your monthly bills with it. Whether you pay your household utility bills such as Meralco, Manila Water, and internet online or over the counter, you can always use your secured credit card and have your finances breathe out for at least a few weeks or a month before the next billing statement. You better make these payments online though to skip the long lines.
[4] You can pay for your weekend groceries and shopping. If you don’t have any readily available cash for the weekend groceries or shopping at the mall, e.g., ATMs are out of service or so, there is no need for you to reschedule your trip or waste your precious time for it’s always convenient to just pay with your secured credit card.
[5] You can use it for dining or book a hotel reservation. You can treat your long-lost friend or your parents in a casual restaurant without worrying or getting pre-occupied all throughout your dining whether or not you really have enough cash in your wallet.
[6] You can use it in any other ways credit cards are used. In short, your secured credit card can be used anytime and anywhere credit cards are accepted for payment, and of course, as long as you still have available for spending in your credit limit. Or better else, use it as just a convenient alternative to cash.
How to Cancel a Secured Credit Card
Cancellations of secured credit cards, even the unsecured credit cards, vary from one bank to another. The simple cancellation guide that follows is simply based on my first-hand experience with my previous RCBC Instacard.
[1] You may simply email the bank, make a phone call, or visit your servicing branch and inform them about your decided cancellation of the card. I strongly advise that you only do this if you have already been already for a regular unsecured credit card. If not, then keep on applying and use it as a referral card.
[2] Make sure you pay all statement balances before the cancellation to avoid issues. You may still have a few unbilled purchases that are not yet reflected on your recent statement or on the app itself. Your nonpayment of the balance may still negatively impact your credit score.
[3] If the hold-out cash deposit hasn’t yet been released to your savings account after the target date, don’t hesitate to make a follow-up. Your request for cancellation may have been overlooked by one of the concerned departments. Maybe, it needs more push, and they need a little reminder of the assurance they gave you.
[4] Check your online account from time to time. Any time after your follow-up, your security deposit will be credited back to your savings account. Seeing that it happens but gives you a peace of mind. Just continue making follow-ups if still it hasn’t.
[5] Cut the physical card into pieces. You may just keep it for a while in your pocket. It’s still a good remembrance.
Other Helpful Articles
If you’ve finally decided to get a secured credit card, these related articles available in this blog maybe of help to you:
RCBC Instacard: Application Requirements and Process (Actual Experience). This article is a short walkthrough of the process how I applied for a secured credit card. It will also give you an idea what to prepare in advance, hence a few application requirements.
RCBC Instacard: Just Like a Regular Credit Card (8 Months of Experience). This article details out how I enjoyed the convenience of using my secured credit card for online food deliveries, monthly bills payments, monthly website hosting renewals, and online shopping and groceries.
RCBC Instacard: Cancellation and Hold-Out Deposit Release. This article simply shares how I graduated from using my secured credit card after a year that I finally decided to cancel it. And yes, it really took 60 days before my security deposit was released and credited back to my savings account just as provided in the terms and conditions.
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