If you’ve recently gone through a tough time or experienced another type of hardship that affected your credit, you may be concerned about your credit card options. Perhaps you’re looking to rebuild your credit score, or simply need an account to make Internet purchases and pay your bills online. Luckily, there are a few products available for people with bad credit.
Secured Credit Card
If you’re looking to get your credit back on track, the most common recommendation is looking into a secured card. These work the same as traditional credit cards, but you’ll have to put some form of collateral down first. In most cases, this is in the form of a security deposit in order to open an account. The minimum amount you have to put down will depend on your creditworthiness. The credit line offered often depends on how much total you put down.
The greatest benefit of obtaining a secured credit card is that it can help you rebuild your credit by using it. So long as you are making your payments on time and maintaining the account, you work toward a stronger credit score. Payments are reported to the credit bureaus like any other debt. Additionally, secured credit cards can be used anywhere that specific brand of card (Visa, MasterCard, Discover, etc.) is accepted.
Many people start out with a low credit line of a few hundred dollars but can ask for an increase after they’ve paid their bill on time for a few to several months. Also, secured cards carry fees, so be sure to read the terms carefully. You will want to take time to understand if there is an annual fee, what the regular Annual Percentage Rate (APR) is, and if there are any other charges of which you should be aware.
As long as you put up the collateral, you shouldn’t have any trouble getting approved for a secured card. Some issuers even allow you to pay the initial deposit over time.
Prepaid Card
Another option for people with poor credit is a prepaid card. Prepaid cards don’t typically help you fix your credit, but they offer a number of other benefits to cardholders.
Most prepaid cards are accepted like normal credit cards. The major difference is that you have to deposit funds into your account before you can use it. This can be especially helpful if you’re looking to control your spending, don’t like to carry cash, or need to pay for things over the phone or online. Prepaid cards are re-loadable, too, so you don’t have to worry about getting a new one when the initial funds are depleted. In all reality, prepaid cards are more like debit cards than credit cards, but they can provide some of the same benefits as traditional credit cards.
Some of the best prepaid cards offer perks such as access to your credit score for free, prescription discounts, direct deposit, cash back, free online bill pay, and other rewards. Most are 100% guaranteed, with no credit check required. However, there is usually a monthly or annual service fee, and there may be an activation fee as well. It is important to review the offer agreement carefully to ensure you are fully aware of what you may or may not get charged for down the road. Some companies will deduct fees from your remaining balance automatically, after several months of inactivity.
The Bottom Line
Whether you have bad, poor, or no credit at all, it’s nice to know there are options available to you regardless if you’re a business or consumer. The type of card you choose depends on your unique financial situation and goals. Getting approved for either type of card should be fairly easy. However, if for any reason you don’t get approved, try to find out why, then consider applying for one that guarantees approval next time. Always take the time to read each offer carefully so you’re not hit with any surprising fees in the future.
