Setting Up Secured Credit

When setting up a secured credit product, the Program Manager must work with the sponsor bank and card network to create a business plan that meets bank and network requirements. This guide describes considerations for setting up a secured credit product.

Obtaining bank and network approval

Before you can offer a secured credit product, you must get a sponsoring bank. The bank that holds your customer accounts may not sponsor secured credit. If this is the case, you will need to use a separate sponsor bank for secured credit.

When you set up a secured credit product, you are adding a new program with new BINs. You will need approval for the new BINs from both your sponsor bank and from the card network. From the card networks’ perspective, the card behaves more like a DDA than revolving credit, so it is important to be clear about why you want a credit BIN. You can ask your Galileo representative to help you with your conversation with the network to avoid misunderstandings.

Underwriting and cardholder qualifications

Galileo does not provide underwriting. You must partner with a third-party underwriter to insure the accounts and to determine what qualifications a cardholder must have, such as minimum FICO score and minimum age.

Fees and interest

If you decide to set up fees for your secured credit product, you determine what kinds of fees to assess, the fee amounts, and when and how to assess them. For secured credit products, Galileo supports either monthly or annual fee assessment with the Assess Fee endpoint. Your Galileo representative can help you set up fee types for your program.

If you charge interest, you will need to calculate the amount and assess it from your own system. While there is a pending dispute on an account, you are responsible for stopping the accrual of interest and for adjusting the stoppage when the dispute is resolved.

Secured account and money movement

You determine when and how the cardholder can move funds between an account and the secured account. The account that funds are moved from must be an account capable of holding and transferring money, such as a Galileo-hosted DDADDA - Demand deposit account. The banking-industry term for an account from which funds can be withdrawn at any time, such as a checking account., savings account, or an external spending account. Other types of accounts are possible as well.

Your sponsor bank may have conditions for allowing customers to move funds out of the secured account. Movement of funds to the secured credit account is not automated by Galileo. You can move funds into the secured credit account with a Create Account Transfer request, or you can move funds out of the secured credit account with either a Create Adjustment or a Create Payment request.

Delinquency, default, and collections

For secured credit products that have a charge card, Galileo determines delinquency based on the first day of the customer's billing cycle and payment rules on the account. You determine when to send an account to collections. You may consider setting up a grace period before a delinquent account is defaulted. It is also common to set a spending block on delinquent accounts. Set up your internal system according to your business plan.

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Note

Galileo can handle reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

If you have Galileo prepare a Metro 2 credit report for you, Galileo will include each delinquent account in the report. For general information on credit reporting, see Reporting to credit bureaus in this guide.

You provide your own terms and conditions to state what happens when a cardholder does not pay back the credit line. Galileo does not automatically move funds from the secured credit account to pay back the amount owed. If necessary, you may have a debt facilitator assist with collections. Galileo does not recommend that you close the account when the cardholder defaults, but that you block spending instead.

Reporting to credit bureaus

There is no legal requirement to report credit account activity to the three credit bureaus. Whether you report the charge card activity to the credit bureaus depends on whether you believe your cardholders will benefit from it. Reporting to the bureaus will most likely help your cardholders establish or improve their credit ratings because they are likely to have a low utilization rate relative to their credit limits. The boost a cardholder can expect in this case is around 35 points at first, and then gradual increases thereafter.

Metro 2 reporting at Galileo

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Note

Galileo can handle Metro 2 reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

Galileo can prepare a Metro 2 credit report for you and then submit the report to the credit bureaus. This report is automatically generated once per month, the day after the customer’s billing cycle ends. To prepare the credit report, you will need to perform these tasks:

  • Set up relationships with each of the credit bureaus to obtain a subscriber ID. This is a three-way contract between each of the three bureaus, you, and Galileo.
  • For each account, ensure that the credit limit has been updated to the correct amount. See Setting the credit line under Developer Setup for Secured Credit.

Account closure status reporting

When a customer’s secured credit account closes, you can indicate the account closure status using Galileo’s Program API. If Galileo handles your credit reporting, Galileo will include the status in the Metro 2 report. A customer’s status at account closure may affect their credit score.

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Note

Galileo can handle reporting only for secured credit products that operate as a charge card with the full amount due each period, and not other credit products like secured cards with revolving credit.

Account closure statuses indicate whether the amount owed on the credit line was paid and who initiated the closure (the customer or the issuer). Account closure statuses are:

  • Account is unpaid, closed by the issuer, and charged off
  • Account is unpaid, closed by the issuer, and is in internal collections
  • Account takeover fraud, account closed by the issuer
  • Account is paid and closed by the issuer due to inactivity
  • Account is paid and closed at the customer’s request

For developer instructions to send account closure statuses see Reporting account closure status under Developer Setup for Secured Credit.

Delinquent account closures and reporting

You may set a policy to state that, when an account is delinquent, the account is closed, and the funds from the secured credit account are used to pay the amount owed. If you do this, and Galileo generates your Metro 2 credit report for you, Galileo must report the account closure and delinquency to the credit bureaus.

If the account is closed after the report is sent, Galileo will not include the account in future reports. If the customer wants to reopen the account, you must create a new account instead and Galileo will report the new account to the credit bureaus. However, if you reopen the account before Galileo sends the report, Galileo will continue to include the account in future reports.

Bankruptcy reporting

Galileo offers a feature for bankruptcy reporting to credit bureaus. Clients can request the Bankruptcy Reporting guide for more information.

Chargebacks and disputes

For charge cards associated with a secured credit product, you may be able to use the same chargeback process that you have for debit cards if the card network is the same. However, you are responsible for setting up your own internal process to handle disputes for fees and interest for the secured credit product. There is no provisional credit for a charge card.

Statements and invoices

You can use RDFs and your own internal reporting to generate statements and invoices according to your agreement with your sponsoring bank. You can change the frequency of invoices depending on how far ahead you can float transactions. For example, you could have two billing cycles per month, or set up weekly billing cycles. See Billing cycle configurations in this guide for more information.

CST support for secured credit

This section describes features in the CSTCST - Customer Service Tool. Software that the Galileo customer service team uses, which is also available to providers, to view and manage customers and their accounts. related to secured credit.

Billing cycles

CST fieldLocationDescription
Next Billing DateAccount Info > Account Details > Summary InformationThe customer’s next billing cycle start date.

Galileo setup

ParameterLevelDescription
ALWNBProductControls whether a call to the Create Adjustment endpoint can drive an account balance negative. When this parameter is set to 1, a call to the Create Adjustment endpoint can drive the balance negative.
BCDAYProductControls the length of time to wait after the bill cycle start date before setting the bill cycle and assessing fees. Use an integer to specify the number of days or MONTH to indicate a one month bill cycle.
CYCLEProductControls whether to assess maintenance fees monthly (MON) or yearly (YER). Weekly assessment is not available for secured credit products. Works in conjunction with CYMET.
CYDAYProductSpecifies the day of the month to assess fees when CYCLE is set to MON. Valid values are 1–28. Weekly assessment is not available for secured credit products.
CYMETProductControls whether to assess a fee by account (PRN) or balance (bal_id). This parameter also controls what happens if the balance is lower than the fee amount. Values for secured credit products are:
- A — Set an independent bill cycle for each account and assess fees by account.
- B — Set the same bill cycle for all accounts on the same balance and assess fees by balance.
- HAD — Hybrid account. Assess fees by account and defer the fee if it will drive the balance negative.
- HAP — Hybrid account. Assess fees by account and charge a partial fee if the entire fee will drive the balance negative. This effectively takes the balance to 0.
- HBD — Hybrid account. Assess fees by balance and defer the fee if it will drive the balance negative.
- HBP — Hybrid account. Assess fees by balance and charge a partial fee if the entire fee will drive the balance negative.

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