NerdWallet: These new credit cards promise no credit checks, fees, deposits or even interest rates. What’s the catch?

by | Feb 13, 2023 | Stock Market

This article is reprinted by permission from NerdWallet.  A credit card that makes it essentially impossible to overextend yourself, while also helping your credit scores? Sounds a bit like having your cake and eating it, too. And what if, as icing on that slice, that card advertised no credit check, no security deposit, no fees, not even an interest rate? For credit newbies and second-chance seekers, that’s a sweet recipe, and it’s becoming easier to find.

In recent years, financial technology companies, from Chime and Grow Credit to Tomo, Varo and Yotta, have unveiled starter cards that remove such traditional barriers to building credit, while also instituting guardrails to keep you on track. But for all their potential benefits, these kinds of products — which tend to work more like secured charge cards — come with certain drawbacks and aren’t for everyone. Here’s what you need to know about them. Related: How to build a good credit historyIdeal ingredients for credit-building These relative newcomers to the market are easier to get and cheaper to hold than a lot of other credit cards for bad credit (FICO
scores of 629 or lower). Some of their benefits include:1. No credit check or traditional security deposit For many of these cards, the application process doesn’t result in a hard inquiry on your credit report that can cause credit scores to temporarily drop. Instead, eligibility may depend on other factors like your income, cash flow or the security deposit, depending on the card. But unlike traditional secured credit cards, you don’t have to put down a fixed, upfront security deposit of several hundred dollars. Rather, you’ll often have the flexibility to choose your own deposit amount, which sets the card’s credit limit. This generally requires that you link a bank account to the card. (Some of these cards don’t require a security deposit at all.) Even though security deposits are refundable, coming up with the typical $200 to $300 immediately — and then tying up that money for months — can be a burden. A flexible secur …

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