Secured credit card: understand how it works

Recently, Nubank launched a new feature: the secured credit card. As explained by the company's advisors, a secured credit card is the ideal option for those without a good credit history to begin significant financial transactions. 

In Brazil, the idea is new, but abroad it is already very well accepted in countries like the United States and the United Kingdom. 

Unlike the prepaid card and the consignment, the proposal came to give another option to those who are in debt or still have little history – the case of younger people. 

It is worth emphasizing that having a negative CPF with financial debts makes credit providers understand that, if credit is granted, there will be default, and this is the main reason why people with a bad credit history find it difficult to obtain credit. 

So let's understand how this new model works?

In this post you will see:

• What is a secured credit card?
• What is the difference between a secured credit card and a prepaid credit card?
• What are the advantages of a secured credit card?
• How can I pay my credit card bill with collateral?

What is a secured credit card?

In practical terms, a secured credit card works as follows: the user releases their credit limit by making a first payment. In other words, if they want a credit limit of R$ 200.00, they need to make a payment of R$ 200.00.

This way, the R$ 200.00 limit will be freed up for recurring services (such as streaming), purchases, or whatever else they want. When the bill arrives, they need to make the payment corresponding to what they spent on the credit, and the limit will return to their card. 

So, this is the main difference between a prepaid credit card and a secured card: your R$200.00 paid limit doesn't decrease to R$0.00 as you spend. As soon as you pay your bill, the limit returns and you can use it again. 

Did you understand?

The advantage is that this is a way to signal to financial companies in general that you are a good payer and, little by little, improve your score to obtain a traditional credit card. 

Each credit card company sets the amount that can be deposited as collateral. Nubank, which introduced this service to Brazil, offers the option to deposit up to R$5,000.00. 

The question is always the same: the ideal is to set a limit within which the user can pay the bill because, if it is not done this way, what was supposed to help build a credit score has the opposite effect and ends up being harmful. 

What is the difference between a secured credit card and a prepaid credit card?

So, the main difference between a secured credit card and a prepaid card is the availability of money. 

How does prepaid work?

This prepaid option doesn't allow you to pay in installments and doesn't build a credit history. The amount you deposit to spend is recurring, meaning that when it runs out, you need to add more to keep using it. 

Furthermore, it is also not possible to withdraw the amount that was deposited. 

Now, how does the secured credit card work?

Unlike the previous option, this option generates credit history, allows you to purchase products in installments, and the amount deposited is not a credit, but becomes a limit for frequent use.

Part of the amount deposited as collateral may be returned if requested. 

Looking at it from this angle, you can already understand that a secured credit card ends up being more advantageous than a prepaid credit card, right?

But let's list these advantages to make it even clearer:

What are the advantages of a secured credit card?

Among the main advantages of this type of card are:

• Payment history generation, generating scores and feeding financial institution channels;
• The purchasing process is exactly the same as with a traditional card, and the flag is accepted in the same way, without distinction;
• Flexibility to add collateral value to the limit itself, or redeem, if necessary, following the pre-established rules – which you agree to when you accept the card;
• Most secured credit cards have no fees or any type of annual fee. 

How can I pay my credit card bill with collateral?

From the moment you make the deposit with the guarantee amount, corresponding to your limit, your card becomes a credit card – which is not traditional, precisely because of this deposit, but from then on it has the same rules. 

Therefore, you can view your entire purchase history in the app, both those paid in cash and installments, and also identify the number of installments, exactly as a regular invoice would.

So I pay to use the card and then I pay the bill again?

Your first payment is made to add a limit to your card. From then on, you can use it normally, keeping that limit you deposited forever. 

Returning to the R$ 200.00 example: when you deposit this amount, you have R$ 200.00 to spend as you wish on credit. When the bill arrives, you pay, and the R$ 200.00 is released again, without you adding a new limit. 

Therefore, this can be a smart choice, especially if you are young and do not yet have a good payment history in the financial market. 

Do you have any questions?

Nubank's website has answers to the most frequently asked questions about this credit model.

Before choosing a card, make sure you can cover all your obligations. 

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