While some have the image that bad credit is for the irresponsible, hard times, being self employed or a stay-at-home mom and even medical problems put people in the category of those with bad or no credit scores. Whatever the reason, there is a need for credit cards for bad credit. Here is how to go about getting them.
Types of credit cards for bad credit
Since those with bad credit are unlikely to be able to get special rewards cards to include cash back credit cards or frequent flier cards, only a few major types of cards that will be covered here: prepaid credit cards, secured credit cards and unsecured credit cards.
Prepaid and secured credit cards are similar but have important differences. What makes them similar is that they both require deposits. However, a prepaid credit card works more like a bank card. When someone uses a prepaid credit card, the money is taken directly from their deposit. Therefore, they are not technically using credit, and there are no interest fees, although there will be set up fees, transfer, annual and other types of fees depending on the card (that can sometimes really add up). Not being true credit, these cards are not reported to credit agencies and will not help one build up a credit rating.
These cards do not require a credit check and are best for those who only want to use a card occasionally or for needs such as offering parents an easy way to send spending money to a child (credit cards for college students should also be considered in this case).
Secured credit cards function basically the same as regular credit cards except for the fact that they require a deposit. This amount of this deposit will determine the line of credit of the cardholder. It will serve as collateral if the cardholder is not able to make payment for some reason. Even though they are secured, they often carry high interest rates. However, they can be used to build credit (make sure the card chosen reports to the three major credit bureaus), and they may be used as a stepping stone to a better credit card over time. In addition, if the cardholder is responsible, the bank may increase the credit limit without requiring a larger deposit.
An unsecured credit card does not require a deposit and will be the most difficult to get. These cards will carry high interest rates, and will usually not have special offers or rewards, when issued to those with bad credit.
Those with bad or no credit can take steps to improve their chances of getting the card they would like.
Getting a credit card with bad credit
- Try to get a card at the same bank where other banking is carried out. If the applicant has funds and a history of good banking habits, the bank will see this and there will be a greater chance of getting a card. Besides, the bank knows they already have the customer’s business and the chance of setting up automatic payment options.
- Get credit cards at smaller retail stores. Like a secured credit card, these cards help build up a credit score and can eventually help one get the best types of cards.
- A cosigner with a good credit history can help someone get a card. Of course, finding a person who will do this can be difficult since any problems the applicant has will also be on the cosigner’s credit.
- Obtain a free credit report copy before applying for the card. Clear up any mistakes that reflect negatively on one’s credit.
- Remember that a 100 word report can be attached to credit reports. Sometimes an honest explanation of any problems can help one get a credit card.
Things to keep in mind when applying for a credit card for bad credit
- Shop around and be wary of those offers that come in the mail since those who are not promoting so actively probably have better offers.
- Remember, pre-approved credit cards are not guaranteed. Everyone is technically pre approved for every card. These offers are just playing with words.
- The goal should always be to build up credit and apply for a regular card with rewards as well as other perks and of course offer better rates. Therefore, keep a low balance and pay on time. Set up automatic payment as added security.
Be it a secured credit card or just taking the right precautions, there are various options for credit cards for bad credit that can help most applicants.
