Credit Card Types - Which Ones Will Help Me Build My Credit Ratings?

In today’s economy a credit card is a must. You can’t rent a car, book a flight or do a lot of things without at least one major credit card.

There are special credit card programs to help people with credit problems get back on track, but it’s important to apply for THESE cards so that you are assured of approval. Then you can begin rebuilding a good credit profile and get your score up where it needs to be!

There are several different types of bad credit cards available: prepaid, secured, and unsecured. It’s important to choose the right one for your financial situation because you don’t want a bunch of lenders pulling your credit just so they can turn you down. This will have a negative impact on your credit score. So choose wisely and apply for the card or cards you are reasonably sure you will qualify for.

Unsecured credit cards are what most people have. The bank extends you a credit limit at a fixed interest rate without you having to put any money in a holding account.

Bad credit credit cards are regular unsecured credit cards, except that the interest rates and fees may be a little higher. The initial credit limit is generally low, perhaps $250 to $300; it will increase periodically as long as the account is kept in good standing. The best way to do this is to make small purchases each month and pay them in one or two payments. This will establish you as a trustworthy person and allow you to negotiate for a lower interest rate and/or a higher credit limit.

Advantages Of An Unsecured Credit Card  

• Your payments and credit limit will be reported to the credit bureaus, which will help in rebuilding your credit.
• You won’t have to put any money in a holding account.

Disadvantages Of An Unsecured Credit Card

• Credit card companies often offer you a very low up front interest rate that only lasts a certain amount of time. Sometimes this special rate applies to transfers of balances from other cards.  But read the fine print!  Usually this interest rate will double or triple when the time is up, or if you make even one late payment!
• Credit card companies can increase your rates any time they like and there's not much you can do about it.  This is why, even if you have an unsecured card with a good interest rate, you need to keep the balance very small at ALL times!

Secured bad credit credit cards are secured by YOU with funds deposited in a savings account with the bank that issues the card. Secured credit cards are exactly the same as regular credit cards except for this feature.

The amount of money that you must deposit into the savings account varies with each program, but generally it determines your credit limit. You may increase your credit limit by depositing more funds into the account.

Advantages Of a Secured Credit Card

• There are some secured cards that extend more in credit than they require you to deposit, possibly $100 more or 1 1/2 times the amount that is in savings. If you default on this card, the bank will take the money in the savings account to pay the balance. Don't default!
  
• It’s a good way for a young person to establish credit for themselves in a controlled environment.

Disadvantages Of a Secured Credit Card

• The bank may or may not report to the credit bureaus on these cards, so check to make sure that they do.
• Interest rates and fees will be higher than those of regular credit cards. This is one time you really need to read the fine print.

Prepaid cards are like gift cards. You deposit a certain amount and that’s what you can spend.  You've only got as much as you put on it.

The major disadvantage of a pre-paid card is that they do not report to the credit bureaus - because you really don’t have a line of credit from the bank, you’re just using your own money.

Pre-paid credit cards are good for traveling because you don't have to carry cash around on you and you won't over spend because you'll have a fixed limit.  Plus the card is good anywhere.

Bottom line - If you have no credit or bad credit apply for an secured card.  Behave yourself and in about 12 to 18 months you might qualify for an unsecured card and have a solid credit history going.  If your credit is OK or semi-OK try for an unsecured card but don't use it like "Free money" because it's not!  Never charge more than you can afford to pay.

CLICK HERE FOR OUR LIST OF CREDIT CARD COMPANIES

BUILDING CREDIT HISTORY

If you're new to the credit game then this article is for you.  Learn how to build your credit by establishing a pattern of good behavior that will get you great interest rates on future auto financing and home purchases.  It's never too late to start building a credit history that will make lenders want you!

MYTHS OF CREDIT REPAIR

Some people will tell you that it's easy to fix mistakes on your credit reports.  Others will tell you that you can actually erase legitimate dings on your credit.  Both of these people are wrong.  YES, you can legally repair your credit but here's why a company like LexingtonLaw fix your credit mistakes faster and easier than you can ever do it yourself.