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.


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