Secured Credit Cards: What Are They, How They Work in Hong Kong

What are secured credit cards?

Although limited, secured credit cards are designed for businesses (or individuals) with not-so-good credit scores. They are typically provided to fulfil a company’s requirement for a credit card with a huge credit line despite having a poor credit score. However, this would require you to provide collateral, typically a fixed deposit.

One of the main benefits of these cards is that they offer you the flexibility to either make regular payments or pay later with interest. If you are unable to repay a credit amount, banks use collateral to offset the debt, making this a secured option.

However, secured credit cards are quite uncommon in Hong Kong due to the strict banking regulations and practices in place. The Hong Kong Code of Banking Practice explicitly states that banks should not issue credit cards to customers without thoroughly assessing their financial strength and repayment capacity.

Rather than offering secured credit cards, most financial institutions in Hong Kong provide alternatives such as loan products specifically designed for individuals with bad credit scores as credit-rebuilding tools.

What are the features of secured credit cards?

Here are some features of a secured credit card you should know before applying: 

Credit limit

‍It is the maximum amount that can be spent on a secured credit card. In most cases, it is 80% to 100% of the collateral.

Cash transaction charges

‍It is the interest charged on all cash transactions, such as withdrawals from ATMs.

Interest charges

‍Interest is charged on balances not paid by the statement due date, just like with a regular credit card. Even so, the interest rate may be lower than that of a regular or unsecured credit card.

Credit tracking

‍Information about your purchases and credit repayment history will be sent to credit data bureau by credit card companies.

What are the pros and cons of using a secured credit card?

Before looking for a Hong Kong secured credit card, it's helpful to understand its pros and cons. Let's take a look.

Pros of a secured credit card

• Financial Security – This card is available to anyone, even those with poor credit histories. Thus providing your business with financial security.
• Build Credit History – Every company deserves a second chance. Making timely payments with this card will help you build your credit score.
• Time to Settle debt – Until the bill is due, you have some time to source and repay the amount interest-free.
• Track Expenses – Using a card for all your business expenses helps you keep track of them in one place.

Here's a side note: Are you having trouble managing your company's spending? With Aspire, you can now manage your company's expenses effectively and with real-time visibility. View Aspire’s Expense Management Services now. 

Cons of a secured credit card 

• Penalty – Defaulted credit card payments will be subject to late payment fees. The accumulation of such interest can result in a large sum over time.
• Annual Card Fee – There is an annual fee associated with the physical card provided. So, you may need to ensure that the benefits of the card justify its cost.
• Limited Credit – Although it cannot be considered a negative aspect, it does limit your expenditures.
• Collateral – Generally, you won't have to worry about your deposit. However, if you are unable to repay your dues, you may lose your deposit.

What type of business can benefit most from secured credit cards in Hong Kong?

As a business owner with a poor credit history, a secured business credit card may be your only option. While secured business credit cards may not offer the same rewards as unsecured credit cards for small businesses, they can be beneficial for building or rebuilding your credit history. Furthermore, when your business grows, and your credit score improves, you may be able to qualify for a credit card without a security deposit.

So, who should opt for a secured business credit card:

• Credit-challenged business owners looking to rebuild their credit scores
• Business owners who can afford to lock up their cash as a security deposit
• Owners of businesses that use credit cards for online and in-person purchases

What are the available secured credit card options in Hong Kong?

As mentioned earlier, secured credit cards are quite rare in Hong Kong. However, some credit cards in the region function similarly to secured credit cards.

Dah Sing Business Card

Dah Sing Bank allows you to obtain a business card by using a fixed deposit instead of providing proof of your company’s assets. However, the bank does not explicitly state the required minimum deposit amount on its website.

Eligibility Criteria:

• Must be 18 years or older
• Must be a Hong Kong resident
• The applicant's company must meet one of the following criteria:
  
  • A sole proprietorship or partnership established for at least six months
  • A limited company established for at least two years

Benefits:

• Cash rebate of HKD 300 for eligible spending of HKD 4,000 or more within the first two months of card issuance
• Annual fee waiver for the first three years
• Up to 60 days of interest-free repayment

Reap Card

Reap, a Hong Kong-based fintech company, offers the Reap Business Card, which allows you to obtain a credit card without providing proof of income. To secure the card, you can submit deposits in either stablecoins or fiat currency, with a credit limit set at a 1:1 ratio of the deposited amount.

Eligibility Criteria:

• Open for companies, partnerships, and non-profit organisations registered in Hong Kong.
• Requires documents such as:
  
  • Certificate of Incorporation and Business Registration (for companies and partnerships) or Certificate of Registration (for non-profit organisations)
  • Hong Kong ID (for residents) or passport (for non-residents) of authorised signatories.
  • Articles of Association.

Benefits:

• 100% online application process
• Flexibility to settle monthly bills in either fiat money or stablecoins
• No card issuance or annual fee

Is there an alternative to a secured credit card in Hong Kong?

It’s always best to know your options, right? So, here are some of the alternatives you might want to know about.

Debit Card

It is a card that withdraws money directly from your checking account. This card can be used for direct payments or cash withdrawals at an Automated Teller Machine (ATM).

Benefits:

You can get one linked to your checking bank account in Hong Kong, making it easier to obtain.

It may have lower interest rates.

Drawbacks: 

• You will be charged for the amount spent immediately, and there will be no additional payback period.
• There may be additional fees involved. 
• Your checking account may also be subject to penalty fees if they are overdrawn.

Prepaid card

Unlike bank debit cards, these cards do not require a bank account. Once you load money onto the card, you can make purchases or withdrawals up to the amount of your deposit.

Benefits:

• No credit check required.
• Easy top-up options and can be used for purchases and transportation.

Drawbacks:

• If linked to your bank account, it may lead to unintentional purchases.
• It will not help you build your credit score.
• All purchases are charged immediately to the card, so there are no repayment periods.

Multi-currency card

A multi-currency card lets you switch seamlessly between fiat currencies and digital assets. This prepaid card allows you to load multiple currencies onto the card, making international purchases much easier.

Benefits:

• Since it is a prepaid card, it is a convenient option for newly established business owners in Hong Kong without local credit histories.
• Widely accepted all around the world.

Drawbacks:

Not all cards allow the withdrawal of the balance amount or the option to transfer to a bank account.‍

Personal loans for bad credit scores

In Hong Kong, several loan products are specifically designed for individuals with bad credit scores. Banks typically do not require proof of income or any documentation to approve this personal loan, which usually ranges from HKD 50,000 to HKD 100,000.

Benefits:

• You get a lumpsum amount upfront.
• You don’t need to provide collateral.

Drawbacks:

• Banks usually impose lower loan limits on bad credit loans compared to regular personal loans.
• This type of loan product generally has lower interest rates than credit cards. However, its interest rates are still higher than those of regular secured personal loans.

Alternatively, you can opt for Aspire Corporate Cards, which function as multi-currency debit cards. They offer 1% cashback and exclusive rewards on digital spending. Additionally, Aspire Corporate Cards allow you to spend directly in HKD and USD, helping you avoid foreign exchange (FX) fees when making international payments.

Frequently asked questions

Can I apply for a credit card with bad credit?

Unsecured credit cards may not be available to you if your credit score is bad. It is, however, possible to obtain a secured credit card, but collateral is required. Make sure you check your credit card eligibility in Hong Kong before applying.

Can you get turned down for a secured credit card?

Yes, if you do not meet the eligibility criteria of the card you are applying for, you may be rejected by the credit card providers. This can be for several other reasons, including errors on your credit card application form or your credit report. A history of inadequate income or bankruptcy could also be one of the reasons.

How can one increase the credit limit for a secured credit card?

For a secured credit card in Hong Kong, credit card providers may approve 100% of the amount deposited as collateral as the credit limit. So you may not be able to raise it higher than that. There may be differences in policies between credit card providers, so contact their customer service for more information.

What happens if there is an urgent need for the deposit money?

You will need to settle the outstanding debt and request the card providers to terminate the credit card. Upon completion of that step, you can notify them to release the pledge on your fixed deposit.

However, if you urgently need to access your deposit but still want to use the credit card, you can ask your credit card provider to lower your credit limit so that they can refund part of your security deposit.