Credit Cards for Bad Credit

It is typically difficult for people with a bad credit history to apply for new credit cards because banks and credit card companies often blacklist people with a bad credit score, and make decisions based on the FICO score of potential customers. However, this does not necessarily mean that it is impossible for you to get a credit card for bad credit because of increasing competition between credit card companies looking for more customers, and if the company feels that you have good intentions to pay bills and re-establish a good credit rating.

Secured Credit Cards

A secured credit card is a credit card that requires a cash collateral deposit, which becomes the credit line for the deposit account owned by the cardholder. A deposit of 100% to 200% of the total amount of credit is usually required for secured cards. Most secured credit card plans also incorporate incentives, in which the deposit required may be considerably less than the required credit limit (sometimes as low as 10%), and held in a special savings account. Banks also offer rewards for good payment by adding to the credit line without any additional deposits required.

Secured credit cards are mostly meant for people with a poor credit history or no credit history, to whom a non-secured credit card might not be available otherwise, and are offered as a rebuilding measure for one's credit. Secured credit cards require higher fees and service charges in comparison to ordinary cards, but in circumstances such as long history of delinquency on various types of debt, secured credit cards can be less expensive in total cost and security deposit.

Unsecured Credit Cards

The bank will not require you to deposit an amount as security or collateral. However, you will be issued a credit card with a low spending limit that may range from a few hundred dollars to one or two thousand dollars, and very high fees. Your spending limit will also be increased if you continue to prove your ability, and good intentions of making payments in time. Make sure that the issuer reports to a credit bureau if you’re applying for a secured card to build or re-establish a bad credit record, so that a proper credit history can be built by the bureau.

Prepaid Credit Cards

A prepaid credit card is a credit card that functions basically like a regular credit card, but the only difference is that they are completely controlled by the user, because instead of borrowing against a credit balance, the funds on credit card is prepaid by the holder who can use them according to needs. The credit limit for prepaid credit cards is the deposit made by you when you opened the credit card account, which also allows you to add more money in the account when funds are depleted. Prepaid credit cards are ideal for those who are looking to build credit, or have a bad credit history, and have teenagers or children in the household.

A prepaid credit card does not carry interest charges but can function like a traditional credit card in many ways; it is useful when building credit for people with bad credit history because the payments made may be reported by some companies to the credit bureaus; and depending on the amount on the balance of the card, the ‘credit line’ is variable.