Key Bank says its customers’ credit scores have gone up

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Key Bank reports that another 4,343 of its customers switched from a secured credit card to a traditional account after being able to significantly boost their credit rating.

Since 2018, the bank has run a program in which consumers with little or no credit can boost their creditworthiness through the use of a secured credit card. This is important because many of these consumers would otherwise be unable to qualify for a credit card.

A secured card works the same way as a regular credit card, but there is one big difference. With a traditional “unsecured” card, the lender has no security in the event of default.

To open a secured credit card account, a consumer deposits an amount of money – often around $500 – into a bank account to act as collateral in the event of default. They make purchases with the card and, if they pay their bills on time, earn points with credit reporting agencies. In the process, they also tend to develop good financial habits.

Of the final group of “graduates,” Key Bank says 69% didn’t have a FICO credit score when they opened an account. Another 31% were designated as having low FICO scores to begin with. At the end of the program, the bank reports that the average improvement in the credit rating of people in the lower category was 81 points.

“Our graduates are in a better financial position coming out of this program,” said Mitch Kime, executive vice president of KeyBank Consumer Client Growth. “With their newly upgraded status, they are in a better position to apply for loans, more banking opportunities and, in some cases, better insurance rates. All of this goes a long way toward creating a financially healthy life for themselves.”

Buy with care

Many other banks offer secured credit cards, but consumers should shop with caution as some may incur much higher fees than others. Danni White, a member of the ConsumerAffairs credit card research team, says a secured credit card can be a useful tool for a significant portion of the population.

“If your credit score is too low to be approved for a personal credit card, then a secured credit card could be your route to rebuilding your credit history,” she wrote.

Secured credit cards are available with no annual fee. However, these cards tend to have interest rates above 20%, even if the account is secure and there is no risk for the lender.

This should encourage users to pay the full account each month. This saves money on interest charges while helping to develop good financial habits.