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Using a secured credit card can benefit your financial life. These cards require a deposit — usually $200 to $300 — which secures your line of credit with the card issuer. The issuer usually reports your card activity to at least one credit bureau, and you build good credit if you pay on time.
But what if you hit a rough patch and can’t pay your secured credit card bill?
As with a regular credit card, paying late may mean you incur a late fee, says Pam Girardo, head of public affairs at Capital One. “Customers are required to make at least the minimum payment by the due date, and the security deposit can’t be used to make the payment,” she said via email.
And if you never pay the bill? You could lose your deposit and lot a more.
Consequences of missing payments
A quick look at what can happen when you don’t pay your secured credit card bill:
You don’t pay by the due date
You’ll probably incur a late fee
Your payment is 30 days past due
You’ll likely incur a late fee and interest on your balance
Your payment is 60 days past due
Your interest rate may increase significantly
Your payment is 90 days past due
Your card may be closed, and you could lose your deposit
Your payment is 120 days past due
Your account may be turned over to a collection agency
At nearly every stop on this timeline, you can expect your credit score to decrease.
If you miss a payment, it will generally be reported to the credit bureaus as late when it becomes 30 days past due. At that point, you'll likely incur a late fee and interest on your balance. Your credit score will also likely take a hit.
If you miss the next payment, and you’re reported as 60 days past due, your credit card interest rate may increase, you’ll be charged a late fee and interest, and your credit score will drop some more. At 90 days past due, all of the above happens, and the issuer may close your credit card.
Christine Forman, a director of acquisition marketing at Discover, said via email that when a Discover it® Secured account is more than 120 days past due, “The account will be revoked, and the security deposit will be applied to any outstanding balance. Any remaining deposit amount will be refunded to the customer.”
Capital One follows similar guidelines, Girardo wrote. “If customers are delinquent for more than a few months, Capital One closes the secured card and offsets the delinquent balance with the deposit. If there is any remaining balance, customers are liable to pay that balance. If there is any deposit remaining, Capital One refunds the deposit back to the customer.”
Get help from the issuer
Secured credit cards can help your credit, but as with any credit card, missing payments will hurt your credit instead. As soon as you think you can’t pay your credit card bill, reach out to your credit card issuer.
On the other hand, if you can manage to make your payments, you might not have to wait long to see results. With the Secured Mastercard® from Capital One, for example, cardholders may be eligible for a credit line increase in as little as six months if they're paying on time.
“With the sixth statement, you will get a credit line increase," according to Jennifer Jackson, managing vice president at Capital One. "We continue to evaluate over time for additional increases, looking at on-time payments and ability to pay. We make sure customers won’t inadvertently get into trouble. And we don’t extend lines where we don’t think they will ever be able to pay it off.”
You probably worked hard to save for the security deposit for a credit card. Don’t let it go to waste if you can help it.