There’s a place in payments for secured cards. They help credit-challenged consumers rebuild their credit by placing funds in escrow, which protects lenders from potential losses.
Some issuers offer strong programs. Discover is one of the few issuers that provides a rewards program. Bank of America offers a great Small Business Secured card. KeyBank stands out with a graduation program that recognizes and celebrates cardholders when they demonstrate a sustained commitment to managing their accounts responsibly.
The Allure of Secured Cards
Secured cards are much better loan products than credit-builder cards, which some fintechs use to game the credit reporting system and loan loss provisioning standards by flipping payments between debit accounts and credit cards through short-term loans.
Secured cards are pure credit cards, underwritten to ensure bank-grade lending, with all the features of Mastercard and Visa card structures, with one twist. If you have a low FICO Score or no file at all, you need to bring a deposit equal to your credit line. Routing Know Your Customer standards still apply.
US News & World Report announced that Discover is no longer accepting applications for its secured card as of June 2. The topic is certainly not of the magnitude of Chase winning the Apple Card from Goldman Sachs, but it does signal more change ahead at the new Capital One.
The new organization is moving along well—delinquencies are under control and the infrastructure appears sound.
Steady Progress
As a cardholder of both Discover and Capital One, from where I sit, there has been slow but steady progress.
Discontinuing the Discover card is not a major industry event, and Capital One has its own version with a great feature. As you approach rehabilitation of your credit score, they have a feature that raises the limit above the deposit amount. This weans the cardholder away from the security requirements, which, hopefully, results in a long-term deposit account, an unsecured credit card, and a happy relationship between the customer and the new Capital One.