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Bad Credit Credit Cards
Credit Cards for People with Bad Credit
How to Choose a Bad Credit Credit Card for You
If your credit score isn’t as high as you’d like it to be, there are some credit cards on the market that will help you build your credit history. These cards are designed for people with poor credit.
People with bad credit are usually limited to secured credit cards, which tend to be pricier than regular, unsecured cards and don’t come with rewards programs. However, they are a great way to establish an credit history and work your way up to the other types of cards. Here are some factors you should consider before choosing the best secured credit card for you:
- Reports to credit agencies: To rebuild your credit, you need to establish a pattern of responsible credit behavior. This means timely payments and staying within your credit limit. But following these rules won’t do you any good if your card issuer doesn’t report your activities to credit agencies. Some secured credit card issuers will report only missed and late payments, and some don’t report at all. Make sure the card you choose will report your credit behavior.
- Credit limit: Secured credit cards require you keep a deposit in an account that the issuer can use if you default on your debt. Usually, the size of this deposit determines your credit limit. In most cases, your credit limit is the same as the size of the deposit, but some companies may set the limit a bit above or below the deposit amount. Know the structure before you get the card.
- Fees/APR: Most secured credit cards include an annual fee, but the size of that fee can vary quite a bit from around $30 to upwards of $100 per year. The interest rate can vary as well – for the most part, higher annual fees are tied to lower interest rates and vice versa. Make your decision based on whether you plan to carry a balance each month. If you’ll pay your bill in full every time, then take the lower annual fee and higher APR. If you’ll probably be carrying a balance, pay the higher annual fee and get a lower interest rate that won’t accumulate as quickly.
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Bad Credit Credit Cards Benefits
Benefits: Bad Credit Credit Cards
Here are some benefits secured credit cards offer over the other payment options available to those who have poor credit:
- Protection: Credit cards offer more protection to you as a consumer than debit cards, prepaid cards, or cash. For unauthorized charges, you will be held liable for only up to $50. Most debit cards and cash do not over this protection.
- Rebuild your credit: A secured credit card may be your only option for rebuilding your credit history. Debit cards are not credit, and therefore their activity is not reported to credit agencies. Once you start to establish a pattern of timely payments, the number of credit card options available to you will expand.
- Cost: You will have to pay fees, but some of the cheaper secured credit cards are less expensive than prepaid debit cards. At about $30 per year, you’re paying less than $3 per month. Some prepaid debit cards charge a fee every time you put money on the card, and some even charge for inactivity if you don’t use it for a period of time.
Disadvantages
Here are some of the drawbacks of secured credit cards relative to the other payment methods available to people with poor credit:
- Cost: Some secured credit cards are less expensive than many prepaid debit cards, but those with higher annual fees can be much more expensive. The alternatives tend to be cheaper: You can find free non-prepaid debit cards, and, of course, using cash is free.
- Deposit: You’ll need to set aside some money in an account that you won’t be able to touch while the card is active, which may not be easy. The minimum is usually a few hundred dollars, and the maximum can be as high as a few thousand. Your deposit will determine your credit limit. Setting aside less money means you’re very restricted in what you can purchase each month, but raising your limit means more of your money is locked into an account.
- Possibility of debt: Your credit limit will be relatively low compared to an unsecured card, but you can still carry a balance with a secured card, and that balance can accumulate interest. Just like with other credit cards, it’s possible to find yourself buried under a pile of debt if you’re not disciplined in your spending habits. This kind of debt accumulation isn’t an issue with debit cards and cash.
One of the best aspects of your credit history is your ability to change it. If you currently have bad credit, a full year of making your payments on time and not exceeding your credit limits will have a noticeable positive impact. Secured credit cards are a great way to establish this new credit behavior.
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