A friend wants to start establishing some credit history, but she’s telling me that the bank is requiring her to get a cosigner for a secured credit card.
A cosigner? I thought the whole point of a secured card is that the bank gets to hold on to a dollar value equal to the credit limit. If you can’t pay your bill, they’ve already got your money so they’re covered. It’s zero risk for the bank, and they get to make interest on the deposit as well as income from merchants at the point of sale. Even if the applicant is unemployed & homeless, as long as she can cough up $500 (or whatever the card’s limit is) for the bank to hold on to, what does the bank have to lose?
I haven’t called the bank to confirm, but I have no reason to believe she’s lying to me. Is there any valid reason why a bank would require somebody to get a cosigner for a secured credit card?
Usually, with a secured card, you get a credit line that is greater than your deposit (usually 110%). I guess they want a cosigner so that in case your balance goes over your deposit (which can happen through late charges, penalties, interest, annual fees, etc.) they can still have someone to go after for the balance of the charges.
When I began building my credit history, I started with a secured card. My bank did not ask me for a cosigner, nor did they give me a credit limit above the amount of money that I gave them. I guess practices at different banks may vary. Personally, I would give your friend’s bank a call, acting as a prospective customer, and ask the details of their process on getting a secured card (including, of course, whether they ever require a cosigner).
My experience was the same as Becky’s; I had a secured card and my credit line was the same as my deposit, with no co-signer required.
Even if your friend’s credit limit is the same as her deposit, she could still owe more than the deposit because of late fees, over-limit fees, or interest. Deposit $500, buy $490 worth of goods, and forget to pay your next bill: now your balance is around $530, after adding the late fee and finance charge.
Me too: I had to deposit $600 for a $500 limit card, no co-signer involved at all. The deposit had to be at least 12% more than the credit limit, and $600 was the smallest CD they sold, and you had to buy a CD as your deposit. This place is locally famously tight-fisted, but they dropped the deposit requirement after a year of regular charges and payments.
Are you sure you’ve got that right? Everyplace I saw/heard from wanted more of a deposit than the credit limit. In the junk mail I got, you didn’t need a co-signer but $300 deposit for a $250 card limit was common. - DougC
I may have been overstating, DougC, when I said “usually.” On two occasions, however, I did receive just such an offer from a bank. I guess I took my experience and projected it too broadly.
“Most reputable credit issuers do no require a deposit…”
Well… it depends. I had no credit rating at all when I applied for that credit card, and at the time my parent’s wasn’t too hot either.
I had friends who recieved credit cards for free without even asking (-and with no deposit required). The common feature among these friends was that their parents owned their own homes, where mine were renting at the time. Usually the credit card offers were from the same banks that their parents already used.
Some of these same friends also (a few years back now) during enrollment in college, got credit cards in the mail, unsolicited. All they had to do was dial the number to activate them. They all had scholarships to attend four-year colleges and I didn’t. I’d bet that if somebody is willing to front you a credit card for free, they probably know a fair amount about your ability to pay (or your parents’ ability, as the case may be…). - DougC
I got my secured card from Wells Fargo, they didn’t require a co-signer and they only wanted $300 deposit for a $300 credit limit. Of course a non-secured card is better, but if you have no credit history and you aren’t a student, it can be impossible to get a regular credit card.
Basically what it comes down to is risk, whether it is secured or unsecured.
Canada is a far superior banking system then in the states. So there are different laws on the books. Here I am talking Canadian Laws/Credit Reports.
You have soft-hits and hard-hits on your creidt. Applying for credit will likely lead to a hard hit, which stays on your credit report for 6 years. Collections (6 years, from paid or deliquent - Equifax or TransUnion)
Reloadable Visas are only good for Car Rentals and Hotel booking and online. Huge fees no credit building. Plus another problem with that is the 15-20% extra for pre-auth they hold for up to a month.
Anyway… What I wanted to add was there is no difference between a secured credit card and a unsecured credit card in the eyes of the credit report. A “1” reported on payments is a 1, no matter if you buy a chocolate bar every month and pay it all off, or spend thousands and pay the minimum payment, or you pay off thousands in full each and every month = no difference. All are the same, UNLESS - you are dealing with your own bank, they have their own internal records they keep for however long they please. Additonally there are 5 types of credit, Mortgage, revolving cred(credit card), open credit (line of credit) and installment credit (car loan). Any pay-day loan place, cell phone, rent-to-own furniture store cant help you build your credit (Canada), but any and all of these places will tarnish your credit very easily. These car loan places that ask for 2 pay stubs is a little more involved then that. They require 5 personal references, so when you fail to pay they can hassle your family, friends and work. High interest rate for a depreciable product and proof of mail/residency, self employed need 3 months bank statements backed by invoices.
So its better to have no credit history, because if you look at the start of college/univ, they credit card companies are lined up ready to shoot in a barrel. Of course the student needs the latest and greatest Air Jordans in the newest colors, or the brand new car because it wont break down. The joys of consumerism.
So…the best thing in life is knowledge. Knowledge is power. Its not to hard to find information in this Google age. If you know your rights and the law, then you can find loopholes in the system.
Canadian Goverment Website
Tells you everything you need to know.
I watched an episode on the TV Show the Fifth estate I think it was. It is almost impossible to get whats on your credit report taken off if its false. I dont know if the show was talking about Canadian or USA. You can however submit notes onto your report.