How to handle the deposit on a secured credit card

I just got a secured credit card to help repair my credit and I deposited 250.00 from my savings account to secure the card.  I'm not sure how to record the transaction.  I assume I just transfer in YNAB between the 2 accounts and I'll show a +250.00 balance in the credit card account, and that charges on the card will just reduce the positive balance, and that I'll just bring the card balance back up to +250.00 each month as I pay the balance in full.  Is this correct?  Thanks.

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  • I would define this card as a cash account or chequing accout, the way I treat gift cards.  Since you can't go negative, there is no need to have a credit card payment category to handle your debt.

    And your assumption on the transfer methodology is spot on.

    Like 3
  • Hey Slate Gray Storm !

    That's exactly right with the transfer! :)

    I know that some credit card companies will eventually refund the deposit and increase your credit limit. If you set the account up as a credit card now, you won't need to change anything if that happens in the future. 

    To learn more about how credit cards work in the new YNAB, take a look at our Quick Start Guide to Credit Cards and consider taking our Master Credit Cards with your Budget workshop! :)

    Like 1
  • Slate Gray Storm  I would not do the transfer that way at all!  The balance on your card will never be correct.  It is not treated like a debit card where you have $250 available and each charge reduces that balance until you reach zero.  It is a account for the same as any other credit card.  If you make a purchase for $100 your card balance is -$100.  You owe $100.  If you do the transfer as Faness suggested, you will show a positive balance of $150!!  

    Instead, you should create a tracking account for that deposit. It is NOT money that is available in your budget.  For now, it is gone and needs to be budgeted for.  Transfer the $250 from checking to the tracking account.  You will need to create a category in your budget called "CC Deposit" or something similar, and you will categorize the transaction to that category. 

    You will open the CC account in YNAB just as you would any other credit card.  

    Like 2
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • 1
      • Reported - view

      2dogs2cats 

      Excellent point.  If the cc is allowed to go negative, and the $250 is used as a security deposit, then it should be treated as a credit card, and the $250 should be accounted for somewhere. I know that both types of cards exist. I looked into the options many moons ago when my own credit was in the tank. I chose to not bother at the time. Then, after a couple of years of paying all my bills on time (or early), eliminating debt, and building up savings, my bank suddently offered me a cc one day, and there were no hoops to jump through to get it.

      I assumed the type of card was a pre-paid cc. OP's description suggests that this card will carry a $250 positive balance and the card cannot go negative. That definitely sounded more like a gift card or cash account to me.

      Depending on the actual requirements of the card and whether the $250 is a security deposit or positive balance being spent would guide me in how I set it up in YNAB.

      Like 1
      • 2dogs2cats
      • 2dogs2cats
      • 2 yrs ago
      • 1
      • Reported - view

      HappyDance  Agreed.  Since the OP said the card was to improve credit, I have to assume it is a secured card.  If it is only prepaid then yes, it is really just another checking account.

      Like 1
    • 2dogs2cats Great catch! I assumed the credit card would be treated like a debit card for the amount deposited. If the deposit is only a security deposit for a greater amount, I completely agree here! 

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    • @2dogs2cats  when creating that tracking account, is it an asset or a liability? (Personal Finance newbie here) and then how should that transfer from Checking to the Tracking account be categorized??

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      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 1 yr ago
      • Reported - view

      Turquoise Wildebeest 

      An asset account.  The security deposit will eventually return to you, so it's an asset.

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  • The card is a secured credit card.  I had to deposit $250, and there is a $500 credit limit on the card.  Aside from the required deposit, it functions like any other credit card.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 2 yrs ago
      • 3
      • Best Answer
      • Reported - view

      Slate Gray Storm Does the $250 affect the balance on the card? Or does the card begin with a balance of $0 and they are just holding your $250? If the latter, I wouldn't worry about transferring it at all. Just make a category for "Costs to rebuild my credit" or whatever ypu want to call it, budget the $250 there, record an outflow, and be done with it. When they give you the money back, you can record it as an inflow. Keep it simple. 

      Like 3
      • HappyDance
      • YNABing consistently since 2014
      • HappyDance
      • 2 yrs ago
      • Reported - view

      WordTenor 

      I like this idea a whole lot better than trying to track the value of a deposit. It's efficient and uncomplicated.

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  • I have a related issue. How would you categorize such an account? It's an asset--and earns interest, so fine to track. Yet it can't be in the "To be Budgeted" total, as you can't spend from it.

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      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 1 yr ago
      • Reported - view

      Ivory Boat On another thread, we were just considering the case of a minimum deposit for a savings account. If you have the account on-budget, and create a category for the money that's securing the card, budget that amount to it and it's now doing the job of securing your card in your budget.

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  • bevocat Thanks for the idea, though I'm still not clear about how to account for that. Create a subcategory (under which category?) and create a one-time transaction or transfer? I deposited this many years ago. Does the date matter? YNAB pulls the amount from that and other accounts at that institution.

    Could you share the link to that thread and/or be more concrete.

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      • bevocat
      • Sometimes, It Just Sucks to Be You
      • bevocat
      • 1 yr ago
      • Reported - view

      Ivory Boat There wasn't anything concrete in there, but I'll make some screenshots of a test budget to explain what I meant.

      Say you have a budget with $1000 in checking and $500 in savings. I allocated some money randomly in some categories to use up all $1500. Then I created a category called "Secured Card Deposit" under "True Expenses". You can name it whatever is meaningful to you and put it where you feel most comfortable.  Then, you have to use the move money tool from lower priority categories to put $250 in your Secured Card Deposit category. Sorry... this month, there's no vacation or computer replacement savings. :( 

       Then you can create a "Target Category Balance" type of goal, for $250:

       

      This is what it'll look like after that:

       

      It's on you to make sure you keep that minimum amount in your savings account and not move it elsewhere or withdraw it, but by keeping this category with its goal met, you know it's been reserved in the budget to do the job of securing your card and not assigned to do some other job.

      Hope it helps!

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