Secured credit cards are becoming a useful tool for many South Africans who want to build or repair their credit profile. These types of cards are slightly different from the usual credit cards that most banks offer. They provide a safer way for people with little or no credit history to show that they can manage credit responsibly. By using a secured credit card correctly, a person can steadily improve their credit rating, which may help them qualify for other financial products in the future.
Key Takeaways
- Secured credit cards help build credit: They are a practical option for South Africans with poor or limited credit history to improve their credit score through responsible use and on-time repayments.
- A deposit is required to open the account: The credit limit is usually equal to the deposit placed with the bank, which serves as security and allows the card to function like a standard credit card.
- FNB and African Bank are current providers: In South Africa, FNB and African Bank offer secured credit card products, while Standard Bank allows deposit-backed credit facilities through negotiated arrangements.
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What Is A Secured Credit Card?
A secured credit card functions in a similar way to a standard credit card. It can be used to make purchases and withdraw cash from ATMs. The card is issued on a few popular payment networks such as Visa, American Express, Discover, and MasterCard, so it is accepted widely. In appearance, a secured credit card looks just like a regular credit card.
Some secured credit cards also offer benefits such as cashback or rewards on everyday spending, much like traditional credit cards provided by banks.
The key difference is that you are required to provide a security deposit before the card is issued. The credit limit is typically equal to the value of this deposit, which is held by the bank or the card issuer as collateral.
Why Would Someone Use A Secured Credit Card?
Secured credit cards are often aimed at individuals who have low credit scores or no previous credit history in South Africa. They provide an opportunity to build a positive credit record by using the card responsibly.
When you use a secured credit card, your account activity is reported to major credit bureaus in South Africa. By making on-time repayments and managing the account well, you can gradually improve your credit score over time.
In some cases, banks will also carry out regular reviews of your credit profile. If you maintain good payment behaviour, you may be offered the option to switch to an unsecured credit card in future, without needing to provide a deposit.
How Secured Credit Cards Work in South Africa
Paying a Deposit
To apply for a secured credit card, you first need to pay a deposit. This deposit usually sets your credit limit. For example, if you deposit R2 000, your credit limit will often match that amount. Some banks may allow a slightly higher limit based on their terms. The deposit acts as security for the bank.
Using the Card
Once activated, the card works like a standard credit card. You can use it for online and in-store purchases, up to your credit limit. Each month, you will receive a statement showing your balance and the minimum amount due. If you do not settle the full amount, interest is charged on the unpaid balance. Paying off your balance in full can help avoid extra costs.
Reporting to Credit Bureaus
Banks in South Africa report your payment history to major credit bureaus such as TransUnion, Experian, and Compuscan. Good payment habits, such as settling your bill on time, will help improve your credit score. This reporting takes place under the National Credit Act.
Getting Your Deposit Back
If you manage your card well, the deposit remains secure with the bank. Should you close the account or qualify for an upgrade to an unsecured credit card, your deposit will be refunded. Many banks review accounts after six to twelve months of good payment behaviour.
Missed Payments and Risks
If you miss payments, the bank may use your deposit to settle what you owe. Missed payments will also be reported to credit bureaus and could harm your credit profile. Responsible use and timely payments are key to building a good credit history with a secured credit card.
Which South African Banks Offer Secured Credit Cards?
A few South African banks currently include secured credit cards in their offerings, though the market is not as wide as for standard credit cards. Here are key providers to consider:
FNB: SmartSecured Credit Card
FNB offers the SmartSecured Credit Card, designed to help individuals build or repair their credit profile. You place a deposit into an FNB savings account, and this deposit becomes your credit limit. There is no annual fee, and the card operates like a regular Visa card. After demonstrating responsible use, you may qualify to upgrade to an unsecured version and have your deposit refunded.
African Bank: Secured Credit Options
African Bank, known for its flexible lending solutions, provides secured credit card products. These cards are suitable for building credit history, though they often come with fees similar to unsecured versions. The card functions as a normal Visa card and reports to credit bureaus. Specific deposit and fee structures vary, so checking African Bank’s current terms is advised .
Standard Bank: Secured Arrangements Possible
While Standard Bank does not specifically brand a product as a “secured credit card”, users can negotiate secured arrangements with the bank. For example, offering savings or deposit collateral may grant access to a lower-risk credit card facility. Officially, there is no dedicated secured card, but personal credit products may be obtained via deposit-backed agreements .
How To Use A Secured Credit Card To Build Credit
Here are some useful steps to help you build credit when using a secured credit card:
- Understand how your deposit works: You need to ensure that you can pay the full deposit within the period set by your bank. If you fail to do so, the bank may decide to cancel your application or close the account before you even start using the card.
- Keep track of your spending and account balance: If you spend more than your credit limit, your card may be declined. If you carry a balance and interest is charged, the amount you owe could soon exceed your original deposit. Monitoring your account regularly can help prevent this from happening.
- Always make your payments on time: Paying at least the minimum amount required each month before the due date will help you avoid fees and penalties. If you can settle the full balance on your statement, this can also prevent interest from building up.
- Stick to a budget: It is helpful to only use the card for specific planned purchases each month. This can make it easier to stay within your limit and manage repayments. It also helps you become more comfortable with how credit cards work.
- Choose a bank that reports your credit history: Not all banks submit secured credit card activity to credit bureaus. If your aim is to improve your credit profile, you need to ensure that your bank reports to at least one of the major credit bureaus in South Africa. This ensures that your good payment habits will reflect on your credit record.
What Are the Pros and Cons of a Secured Credit Card?
If you are unsure whether a secured credit card is suitable for your needs, these advantages and disadvantages may help you decide.
Pros of Secured Credit Cards
- Can be accessed by people with poor or limited credit history: Even if your credit score is low or you have little credit history, you may still qualify for a secured credit card.
- Helps improve your credit score through responsible use: By using the card wisely and making payments on time, you can gradually improve your credit profile.
- Some cards do not charge annual fees and may offer cashback or rewards: A few secured credit cards come with extra benefits such as no annual fee or the ability to earn rewards on your purchases.
- Works in the same way as a standard credit card for everyday spending: You can use the card for online shopping, in-store purchases and bookings, just like any regular credit card.
Cons of Secured Credit Cards
- Interest rates (APRs) are often high compared to regular credit cards: If you do not pay off your full balance, the interest charged can be more expensive than that of an unsecured credit card.
- Penalty fees can apply, such as higher interest rates for missed payments: If you miss payments, you may face penalty charges and an increase in the interest rate applied to your balance.
- Some secured cards charge an annual fee: Not all cards are free to hold, so you may need to pay an annual fee, depending on the provider.
- Credit limits are generally low: Most secured credit cards have low spending limits, as they are based on the amount of your security deposit.
Conclusion
Secured credit cards provide a practical way for South Africans to build or repair their credit history. By offering access to credit backed by a security deposit, these cards give users the chance to prove they can manage credit responsibly. Over time, this can help improve their credit score and lead to more favourable financial opportunities. With options currently available from banks like FNB and African Bank, secured credit cards are a useful tool for anyone wanting to strengthen their credit profile while keeping borrowing risks under control.
Frequently Asked Questions
Can I use a secured credit card for online purchases?
Yes, secured credit cards can be used for online shopping in exactly the same way as standard credit cards. You can pay for goods or services online as long as you have enough available credit on the card to cover the full amount of the transaction.
Do I earn interest on my deposit?
In most cases, banks do not pay any interest on the deposit that you provide for a secured credit card. The deposit is held purely as collateral. Once you either upgrade to an unsecured credit card or close your account in good standing, the bank will return the full deposit amount to you.
How long does it take to improve my credit score?
If you use your secured credit card responsibly by keeping your balance low and making on-time payments, you may start to see improvements in your credit score after six to twelve months. The exact timing will depend on your individual credit profile and how well you manage your account.
Can I withdraw cash from an ATM with a secured credit card?
Yes, most secured credit cards allow cash withdrawals from ATMs. However, using your card in this way will usually incur additional fees and interest charges, which can make it quite expensive. It is generally best to use your secured credit card for purchases rather than for withdrawing cash.
What happens if I miss a payment?
If you miss a payment on your secured credit card, the bank has the right to use part or all of your deposit to cover the outstanding balance. In addition, late payments will be reported to credit bureaus, which could lower your credit score and harm your credit record. This is why it is very important to always pay at least the required minimum amount by the due date.
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