Options if You're Denied for a Secured Credit Card

Credit cards offer purchasing power that's convenient for day-to-day purchases or as a lifeline for unexpected emergencies. But according to a 2018 analysis by the Urban Institute, a nonprofit research organization, 27 percent of Americans have subprime credit, which means they may face rejection for credit products designed for good or excellent credit.

A secured credit card can offer access to credit if you don't have good credit. It can be a tool to build or rebuild your creditworthiness. Using a secured credit card, you may improve your credit enough to qualify for unsecured cards, which could offer better terms.

These secured products work in the same ways as a regular credit card. But the key difference is that cardholders are required to provide a security deposit to open the account. Even though secured cards can be an option for consumers with bad credit, it's possible you won't be approved.

If you're denied a secured credit card, there are still ways to improve your credit profile and potentially get access to credit. But there are caveats to keep in mind, depending on which route you go. Here's what you should know.

[Read: Best Secured Credit Cards.]

Reasons You Could Be Denied a Secured Credit Card

The first place creditors look when reviewing your application is your credit report. Your report outlines your past and current credit behaviors, and helps creditors examine whether you're a good candidate for a credit card. However, outside of your credit, other factors might lead to a denied application, such as:

-- Showing bad habits on existing accounts. For example, creditors can look at how you manage an existing checking account you have with them. If you have issues overdrafting the account, that could adversely affect your application.

-- Not having enough income. Income requirements vary by creditor (and are usually not publicly shared), but if you don't have enough income, creditors might question your ability to repay the debt and consider you high risk. Also, by law, if you're younger than 21, you or a co-signer must be able to demonstrate enough independent income to make regular payments before an issuer can open an account for you.

-- Starting a new job. It might not be enough to have income, but you also need to demonstrate that you have stable income. If you haven't been with your current employer long, this might play into a creditor's decision.

Although creditors have varying criteria for approving or denying a secured card, these are some areas to check if your application was turned down. But figuring out what went wrong shouldn't be a complete mystery. If you're declined for a credit card application, the lender has to provide an adverse action notice.

"That would tell you exactly why the lender decided not to open the account for you," says Rod Griffin, director of public education at credit bureau Experian. "So that would give you a good sense of what to look for -- if it's a credit reporting issue or if it's something else."

Find More Clues on Your Credit Report

Review your adverse action notice and start addressing any issues. You're entitled to a free credit report from the credit bureau the issuer used if you're denied credit based on information in your report. The adverse action notice will indicate which credit bureau's information was used to make the decision and how you can contact it for your free report.

It's a good idea to get a credit report from all three credit bureaus so you can make sure you're addressing issues with each of them. By law, you're entitled to receive a free report from each credit bureau every 12 months. Visit AnnualCreditReport.com to get free copies of your credit report from Equifax, Experian and TransUnion.

Although your credit report is a crucial tool that's used to evaluate your credit background, it's not perfect. Finding errors on your report isn't necessarily common, but they can come up and affect your ability to get approved for a credit card.

One way to improve your credit quickly is by fixing errors on your credit report. Initiate a dispute immediately with each credit bureau if you spot a mistake.

"The source of the information, when you go to them, has 30 days to respond to that dispute," says Griffin. "That said, most disputes are completed and updates made within 10 to 14 business days, and quite often less than that. Frequently, disputes today are completed in two to three business days."

If late or missed payments on your credit report are what's sending a red flag to creditors, get on track with payments. Consider setting up auto-pay for recurring bills or using an online tool, like Mint, to budget and track your monthly payments. This credit-building method takes time, but it's the most worthwhile since payment history makes up 35 percent of your FICO credit score calculation.

Debts in collection can indicate irresponsible credit management in the eyes of creditors. If you have an unresolved collection account on your report, don't ignore it. Take steps to address the collection, whether that means disputing it or asking the collector for a debt validation letter. If it's a valid, unpaid debt, see if a payment plan can be worked out or speak to a lawyer to see what makes sense for your situation. Resolving collection issues helps you and your credit move forward from past mistakes.

Finally, a major hallmark of risk on your credit report is a bankruptcy. Depending on the type of bankruptcy you filed, it stays on your credit history for seven to 10 years. In that case, you'll have to ride out the timeline before creditors will stop viewing you as a high risk.

[Read: Best Starter Credit Cards.]

Alternatives If You're Denied a Secured Credit Card

Whether you're interested in building your credit from scratch or improving your existing credit, there are alternatives to a secured credit card that help you access a line of credit.

Local bank or credit union secured cards. If you were denied by a credit card company that you don't have a relationship with, try a financial institution that's more familiar with you. Your local bank or credit union might have a secured card that's right for you. Assuming your existing relationship with your institution is positive, meaning your account isn't overdrawn and you aren't behind on any payments, your local bank or credit union might be more flexible in opening a secured account for you.

Credit-builder loans. Credit-builder loans are small loans commonly offered by credit unions and local banks. These products usually offer a loan of $300 to $1,000, which is deposited by the institution into a savings account or certificate of deposit account on your behalf.

Over a six- to 24-month term, you'll make monthly installments toward your loan. When your term is complete, you'll receive the amount in the deposit account back (sometimes with earned interest). Your track record of on-time payments is reported to the credit bureaus as a way of showing your positive borrowing habits.

Secured cards with no credit check. A secured credit card that doesn't require a credit check seems like a no-brainer if you were denied due to your credit. This type of secured card does exist and operates similarly to a secured card that requires a credit check, but there's an important difference.

"With cards that don't do a credit check, the stipulation is, 'Yes, you can get your money back, but only if you close out the card,'" says Shante Nicole, founder and CEO of Financial Common Cents, a nonprofit financial educational resource. "Which means you can no longer use it."

For example, let's say you've demonstrated good purchasing and repayment habits and lifted your credit score. With a no credit check secured card, there usually isn't an option to transition to an unsecured card through the same creditor. You'll need to close the account to reclaim your deposit and reapply for an unsecured card elsewhere. On the other hand, for a secured card that requires a credit check, the creditor might offer to return your deposit if you're eligible to upgrade to an unsecured card.

Retail store cards. Another way to build your credit is through retail store cards. This type of card is common: The Experian State of Credit study in 2017 found that 41 percent of consumers surveyed have a retail or store-specific credit card.

Aside from the temptation to overspend on unnecessary purchases, a huge consideration when using these cards is the potential for high interest rates. It's common to see retail card annual percentage rates around 25 percent.

Some retail cards specifically serve cardholders with bad credit, or little to no credit.

[Read: Best Credit Cards for Bad Credit.]

Other Ways to Show Your Creditworthines

At the end of the day, you might decide that you're just not ready for a new credit product right now. Incrementally improving your credit is still possible by making sure your on-time monthly payments, like rent payments, are reported to the credit bureaus.

Not all rental management companies and landlords offer this service, but it's worth asking. If they don't, you can still report your payments to all three bureaus using a third-party service, like RentTrack, for a small subscription fee.

Important Considerations Before Making Your Next Move

There are a number of options still available after being denied a secured credit card, but each has its caveats that can outweigh the benefits. Here are a few other considerations to be mindful of:

-- Be wary of options with no credit check. These products can have high fees and interest rates, and heavily rely on your income and employment history for approval.

-- Ensure full reporting. Make sure your good payment behavior is reported to all three credit bureaus. For example, some rent tracking services only report positive payments to one or two bureaus.

-- Read the fine print. The terms and conditions of an account might include application fees, processing fees, annual fees and high interest rates, in addition to your security deposit. For example, the Green Dot primor Mastercard Classic Secured Credit Card charges a $39 annual fee that's automatically deducted from your available balance, immediately lowering your purchasing power.

Jennifer Calonia is a Los Angeles-based finance writer whose goal is to help readers get excited about improving their financial health and overall well-being. Her work has been featured on Forbes, The Huffington Post, MSN Money and Business Insider. In her spare time, you can find her outdoors, exploring state and national parks.