Credit Cards for those with Bad Credit
Individuals with poor credit have limited options when it comes to reestablishing credit. However, there are still ways to get a credit card in order to improve your credit rating. Most credit cards companies do not provide credit cards to people with poor credit. These unsecured cards have the highest rate of default among users. For those who have had difficulty making payments, the risk to the bank or credit card issuer is even higher. Thus it is difficult to get a credit card if there is no credit or poor credit.
Even with poor credit, some retail stores or companies including Kohls and Lowes offer credit cards. These credit cards offer individuals small credit limits which will allow you to improve your credit rating and credit score if you make the credit card payments on time.
Another option for those with poor credit is a secured credit card. Secured credit cards can be obtained through a number of banks and act as a debit card while helping an individual’s credit score. Anyone can obtain a secured credit card with a deposit which secures the charges. In the event of non-payment or default the bank will use the deposit to pay the balance on the account.
How to Qualify for Credit Cards for those with bad credit?
Unfortunately retail stores have been tightening up on the requirements to receive a credit card within the last several years. Due to the lackluster economy, retail companies that offer credit cards have stricter requirements for qualifying. Cards for specific stores with high interest rates are the best opportunity for approval. When applying for a retail credit card, an individual’s credit report will be viewed. Based on the credit score, the company’s policies, and whether or not bank feels the individual can repay the debt, the individual will receive a credit card. The credit card’s limit will be based on the credit score, income and other debt payment that appear on the credit report. Often retail stores offer special financing with 3, 6, or 12 month’s without interest for purchases over certain limits. Retail cards generally have high interest rates, but rarely charge an annual fee.
Prepaid and Secured Credit Cards
Anyone can receive a prepaid or secured credit card because the credit card acts as a debit card. There are many options with a variety of banks offering a secured credit card. The main different between a debit card and a secured credit card is that the debit card does not report to the credit bureau. The credit card will report outstanding balances and payments to the credit report each month, thus increasing your credit score as on time payments are made.
Secured credit cards require you to deposit an amount of money either onto the credit card or in a bank account to secure the account. The credit limit will then be set at the amount of the deposit. Payments made on the card each month will enable you to reuse the line to reestablish credit and improve your credit score. The interest rates are high on these cards and often come with annual fees, even though you are essentially using your own money. As payments are made on time, the credit card holder’s credit will improve. Prepaid or secured credit cards work in a similar fashion to a debit card. The only money that can be spent is the money that has been placed on the card before use.
What are the Benefits of using a Credit Card for those with bad credit?
By establishing a retail credit card, individuals will be able to save money at a store they shop at frequently. Most retail credit cards also offer discounts to the customer when they use the credit card to purchase merchandise. Specials and additional discounts are commonly offered. Some cards will offer rewards points for using the card which can lead to additional discounts. Having a retail credit card will also improve an individual’s credit score as long as the monthly payments are made on time. Retail credit cards can often only be used at specific stores but payments are reported to the credit bureau each month.
If you have bad credit retail credit scores will usually offer a small credit limit with high interest rates. Credit limits can be as low as $100. Yet if you use the account each month, and then pay it off in full each month, you will reestablish your credit. As payments are made on time, the credit limit will be raised. Do not let a higher limit be a temptation to spend more money as the goal is to improve your credit, not acquire more debt.
Prepaid and Secured Credit Cards
The best benefit of a prepaid and secured credit card is that when someone pulls up your credit score it is shown as a standard credit card issued by a bank. When a bank issues a credit card to an individual, it will show responsibility as on time payments are made. This will encourage other companies to issue you a credit card even if the credit limits are low.
Another benefit of a prepaid or secured credit card is that anyone can obtain this type of credit card. Another benefit is by not having a high credit limit and only being able to spend money that has been previously deposited, individuals are more careful toward spending and can build good habits around credit card use. Another benefit is that generally after 6 months of on time payments the credit card company will offer an unsecured credit card. This allows the card holder to get their deposit back and still maintain a credit card.
It is important to remember that is you get a credit card and fail to make payments when they are due, this will also be reported to the credit bureau. Overspending will continue to hurt your credit. Poor credit means paying more in interest for everything that is financed. It can result in very high interest rates if you want to purchase a vehicle. Low credit scores can prevent you from buying a home. Insurance rates and even jobs are often dependent on credit scores.
Taking the measures to improve your score will create more credit availability. Overspending and making late payments will keep your credit score low and is very costly.