Worried that bad credit or a lack of credit history could prevent you from obtaining a new credit card? Don’t worry – credit card issuers have products designed specifically for people like you! While these products do tend have higher interest rates (and additional fees) when compared to ‘standard’ credit cards, they’ll provide you with a great opportunity to build and improve your credit score over time.
Unsecured Credit Cards
An unsecured credit card is a ‘standard’ or traditional credit card that DOES NOT require a security deposit to obtain. The interest rate and credit limit you receive will be based solely upon your finances, employment situation and credit history.
This means that most unsecured credit cards are out of reach for people with bad credit; however, there are a few exceptions listed at ASAP Credit Card. These offers have higher rates (and additional fees) when compared to standard unsecured credit cards, but you can avoid a security deposit and still receive an approval.
Secured Credit Cards
Secured credit cards are available to just about anyone, regardless of credit history. That’s because a security deposit is required – normally between $100 and $500 – before you can make any purchases. Since the security deposit determines the size of your credit limit, if you run into problems paying your bill at any time, the security deposit will be used to cover your obligation – securing your debt and protecting the bank.
Although this may not seem like a ‘true’ line of credit, a secured credit card will provide you with the opportunity to establish or rebuild your credit history since all of the activity will be reported to the three major credit bureaus (Equifax, Experian and TransUnion). Here are some other points to consider:
- Interest may be paid on your deposit – up to 4.5%
- Cards that carry the MasterCard or Visa logo appear like a standard card to merchants
- Some issuers offer double the amount deposited as the credit limit
- Your credit limit may be increased without additional deposits after you’ve successfully shown your ability to responsibly pay your monthly bill
- Be aware that some issuers charge a fee to increase your credit limit
- You may be denied a credit card if any late payments posted on your credit report within
the last six months
- Some issuers will not consider applicants with a past bankruptcy
Secured credit cards are a great option to build or repair your credit history. Try to pay more than the minimum payment whenever possible, and always make your payments on-time. And you should avoid exceeding 50% of the available credit limit. Once you’ve demonstrated that you can handle your credit responsibly, the issuer may increase your credit limit without any additional deposit. Eventually, after you’ve established a positive track record, you’ll be able to qualify for a ‘standard’ card with a lower APR and fees.
Prepaid Credit Cards
A prepaid credit card operates on a “pay-as-you-go” basis and can be used anywhere credit cards are accepted. They offer many benefits, and in most cases, are very easy to use. But be aware, not all prepaid cards report your activity to the major credit bureaus. Although you’ll benefit from the safety and convenience offered by a prepaid card, you won’t be building or improving your credit history if the company doesn’t report your card activity.
If you have bad credit, or no credit at all, try applying for an unsecured credit card first, if you can’t afford a security deposit. This prevents you from having to supply cash and provides you with a ‘true’ line of credit if you’re approved. Since most credit card issuers will offer you a secured line of credit if you don’t qualify, you should try for an unsecured offer and only accept a secured credit card if you don’t qualify.