Bad Credit Cards 101 - What Type Of Credit Card Should I Apply For?
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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 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 pretend that you don’t “need” it and use it sparingly. Make small purchases each month and pay them off before the bills cycle. 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
Like any credit card there are advantages and disadvantages. With the pre-paid card the disadvantage is the limitations of how much you can charge (limited by how much you have prepaid). The advantage is this will help you rebuild your credit. It should not be your goal to see how much you can run up in credit charges anyway, but we all need credit and this will help you rebuild what you have lost in your credit score.
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 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 pretend that you don’t “need” it and use it sparingly. Make small purchases each month and pay them off before the bills cycle. 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.
For a list of our recommended bad credit credit card companies click here.
Secured bad credit credit cards are secured by YOU with funds deposited in a savings account with the bank that issues the card. Secured bad 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.
Like any credit card there are advantages and disadvantages. With the pre-paid card the disadvantage is the limitations of how much you can charge (limited by how much you have prepaid). The advantage is this will help you rebuild your credit. It should not be your goal to see how much you can run up in credit charges anyway, but we all need credit and this will help you rebuild what you have lost in your credit score.
