Getting your first credit card can be frustrating. You need good credit to get approved, but how are you supposed to build a good credit history without having a card in the first place? It’s especially tough if you’re just starting out in your career or have just started managing your own budget, or the first time. Secured credit cards help. They’re made for people in exactly this situation, giving you a way to start proving you’re reliable, and taking a first step on the borrowing ladder.

What Is A Secured Credit Card?

A secured credit card is a credit card that is backed by a cash security deposit you place with the issuing bank. This deposit, also known as collateral, removes the risk for the bank. Because their money is protected, they are far more willing to approve applicants who have a limited or non-existent credit history.

Your credit limit is typically set to be the same amount as your security deposit. For instance, a RM3,000 deposit will usually grant you a RM3,000 credit limit. Aside from the deposit, it functions exactly like a standard credit card for making purchases, paying bills, and managing your expenses.

How Is A Secured Credit Card Different from a Regular Credit Card?

While both cards work the same way for purchases, their approval process and structures are fundamentally different.

• Security Deposit: A secured card requires a cash deposit held in a Fixed Deposit account. An unsecured card does not require any collateral.
• Approval Basis: Approval for a secured card is based on your ability to provide the deposit. Approval for an unsecured card is based on your income level and credit score.
• Target User: Secured cards are designed for individuals looking to build or rebuild credit. Unsecured cards are for those who already have an established credit history.

Who Should Consider a Secured Credit Card?

A secured credit card is an excellent choice for several types of individuals:

• Students and Fresh Graduates: People who are just entering the workforce and have no credit history.
• Freelancers or Gig Workers: People with incomes that change from month to month who may find it hard to meet the strict income requirements of unsecured cards.
• Individuals with Poor Credit: Anyone looking for a second chance to rebuild their credit score after previous financial difficulties.
• Foreign Residents: Expatriates who are new to the Malaysian financial system and lack a local credit history.

How Does a Secured Card Build Your Credit Score?

The whole point of getting a secured card is to build a good credit history. Every month, your bank reports your payment habits to a centralised national database managed by Bank Negara Malaysia, known as the Central Credit Reference Information System (CCRIS). It serves as a factual record of your credit history with all participating financial institutions in Malaysia.

When you use the card for small purchases and pay your bill on time, you create a positive payment history. This is one of the key factors in making a good credit score for yourself: paying your bills on time. A good track record shows other banks that you’re a reliable borrower, which is exactly what they want to see when you apply for bigger loans down the road.

What Is The Minimum Deposit For A Secured Card In Malaysia?

The required security deposit varies between banks in Malaysia, but typically starts from RM2,000. This amount is placed into a Fixed Deposit account in your name.

An added benefit is that the Fixed Deposit account will earn interest over time, just like a regular savings account. If you are unfamiliar with this product, you can learn more about how Fixed Deposits work in Malaysia right here at Ringgitplus. The bank will return your full deposit, plus any earned interest, once you close the secured credit card account in good standing.

What Documents Are Needed for an Application?

The application process for a secured card is simpler than for an unsecured one. As the deposit is the main requirement, extensive income proof is often not needed. You will need to provide:

• A completed bank application form.
• A copy of your MyKad (for Malaysians) or Passport (for non-Malaysians).
• The funds required to open your Fixed Deposit account.

Always confirm the specific document list with your chosen bank before applying.

How Do I Use A Secured Card Responsibly?

To build your credit score, you must use your secured card wisely. Follow these best  practices:

1. Always Pay On Time: Pay at least the minimum amount before the due date. To build the best history and avoid interest, make it a habit to pay the full statement balance each month.
2. Maintain a Low Credit Utilisation Ratio: This is how much of your credit limit you use, expressed as a percentage of your credit limit. For example, with a RM2,000 limit, a RM400 balance is a 20% of your total credit limit. Aim to keep this ratio below 30% at all times.
3. Use it for Small, Planned Purchases: Use the card for routine expenses like petrol, groceries, or subscription services to show consistent activity without overspending.

How Do I Graduate to an Unsecured Credit Card?

After demonstrating responsible usage for 6 to 12 months, you may be able to move on to an unsecured credit card.

Some banks will automatically review your account and offer to upgrade you, returning your security deposit. Others may require you to apply for one of their unsecured cards. With a healthy payment history on your CCRIS report, your application will have a much higher chance of success.

Your Checklist for Building a Better Credit Score

• It’s A Tool, Not a Trap: A secured card is a stepping stone, designed to help you build credit safely.
• Your Money is Secure: The deposit is held in a Fixed Deposit account under your name and is returned to you when the account is closed.
• Responsible Use is Everything: Timely payments and low balances are essential to improving your credit score.
• Graduation is the Goal: The ultimate aim is to use the secured card to qualify for a regular, unsecured credit card with better benefits.

A secured credit card is a practical tool that lets you build a solid financial reputation when you’re starting out. It’s the first step towards getting approved for important loans like a car loan or a mortgage. This helps improve your financial situation for the future.

When you feel ready to take that next step, you can explore and compare the best credit cards available in Malaysia to find one that suits your newly built financial standing.

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• TAGS:
• Credit Cards
• Secured Credit Cards