Types of Credit Cards for Bad Credit

Whether you’ve defaulted on personal loans or had to file bankruptcy in the recent past, your previous financial mistakes shouldn’t determine your current credit worthiness. While banking institutions are less likely to give you a credit card when your credit history is lackluster, with perseverance and a desire to establish good credit habits, you’ll soon be a member of the Good Credit Club. Of course, all this starts with choosing the best type of credit card for those with bad credit.

Secured Credit Cards

Traditionally, credit cards are filed under the “unsecured” category. That is, the amount of credit given to your account is based upon your credit history and current credit score. This information is used by banking institutions to determine whether or not you’re a good candidate (i.e., whether or not you’ll pay your bill on time). If you’ve had issues with credit in the past, or if you have no credit history, you’ll likely be turned away from the traditional unsecured credit card option.

While frustrating, there is an alternative option. Secured credit cards are those that use an initial deposit as a form of collateral. While you don’t actually borrow against this deposit, it’s used as a way to guarantee the bank its money should you default on payments. Typically, secured credit cards require an initial deposit to establish the account and your credit limit. For example, you open an account with a $300 deposit. Therefore, your credit limit is $300. You may borrow up to this amount and as you pay off your balance the credit limit is reset.

The biggest benefit of a secured credit card is how it handles your monthly payments. Since 30 percent of your credit score is based upon your payment history, if you have a history of late or non-payments your score will likely be very low. If this is the case, then you’ll need to boost your score by making payments on-time. With secured credit cards, your monthly payments are reasonable due to your lower credit limit. Moreover, each monthly payment is reported to the three main credit bureaus. Over time, typically 12 to 18-months, your credit score will experience a significant boost. When this occurs, you’ll likely qualify for an unsecured, or traditional, credit card with a higher credit limit and lower interest rates.

Remember, while you must never rely on credit to pay your bills, establishing good credit through on-time payments and responsible spending will boost your score and open up an entirely new financial world filled with possibilities.


Secured Credit Cards – The Gritty Details

When you’re scouring the market for a new credit card with a less-than-perfect credit report, you’ll likely encounter a myriad of “Thank you for your application, unfortunately…” statements. While you may not qualify for a traditional credit card, there is an alternative. Secured credit cards were designed to assist those with bad or no credit obtain a credit limit without the fear of adding excessive debt. When these cards are used correctly, you’ll experience a boost in your score and financial future; however, when used improperly, your credit report and financial standing will significantly suffer. Continue reading to uncover the gritty details of secured credit cards. If your credit score is suffering, visit http://your650score.com/my-credit-score-is-650/ for information on how to increase it.

Secured Credit Cards Explained

During a traditional credit card application process, you’re given a credit limit based upon credit scores and report information. For some, this results in a decent limit with low interest rates; however, for a growing number of consumers, even the option of an unsecured credit card is taken away. This is where secured credit cards come into play.

With a secured credit card, your credit score is typically left out of the question. Instead, the credit limit is set not by your current credit report, but rather based upon an initial deposit. Unlike prepaid credit cards, where you must replenish the deposit amount to keep using the card, secured credit cards use this deposit as a means of establishing a line of credit. Considered collateral in the banking world, if you were to default on your card the bank still receives its owed money – and you still receive a negative credit report mark.

As you make your monthly payments, and they’re on-time, the credit card company reports this activity to the major credit agencies. Therefore, over a period of time, your credit score is improved. This is an essential process for those with no or bad credit.

What to Watch Out For

While the notion of a secured credit card seems pleasant enough, there are some serious pitfalls to this credit option. Firstly, it’s not unheard of for major banking institutions to deny a secured credit card application from those who have a history of negative credit reports. This seems to be a trend in the 2014 financial industry as more and more credit companies are moving to unsecured cards with lower limits and higher interest rates for those with less-than-perfect credit. Therefore, avoid this situation by choosing a card that doesn’t check your credit for approval, but reports account activity to credit bureaus. Also, avoid secured cards with a monthly “insurance policy.” This is considered black-hat banking techniques as the bank is literally stealing money out of your wallet. The initial security deposit should be the only out-of-pocket fee you encounter. If not, continue with your search for the perfect credit card such as this one http://www.creditcards.com/secured-credit-cards.php.