There are two main types of plastic available for people in this situation: secured credit cards and prepaid cards. Both have advantages and drawbacks.

Secured credit cards
As the name implies, the credit line on a secured credit card is backed by a deposit you make in an account linked to the card. Once a deposit is made, you can use a secured credit card just like any other credit card — charging purchases to the card and paying monthly bills.

The security deposit is drawn down only if you fail to pay the credit card bill on time and as agreed. In addition, if you maintain a regular payment history, the card issuer will typically reward you by increasing your credit line without requiring you to add to your security deposit.

Pros: The monthly bill payments made on most secured credit cards are reported to the credit bureaus. For this reason, a secured credit card can help you build a good credit history — as long as you pay the bills on time.

Cons: The main disadvantage of secured credit cards is the cost. Because these cards cater to higher-risk consumers, most issuers of secured cards charge higher fees and interest rates. By law, the opening fees are limited to 25 percent of the available credit limit during the first year. This means that, for an initial $200 credit line, a secured card would come with a $50 opening fee, leaving you with $150 in available credit. These “minimum security deposits” vary and are sometimes refundable when you close the card with a $0 balance. Read the terms and conditions of each card carefully before apply.

Watch out: Avoid online credit card applications that don’t enable you to see the card terms and conditions until you’ve gone through the application process. They are likely to hide sneaky terms, like charges for increasing your credit limit or high annual fees. Also watch out for secured credit cards with high interest rates. Some can sport interest rates as high as 49.99 percent.

Best bet: Capital One Secured MasterCard. For a modest $29 annual fee, you can get a $200 credit line backed by a $49 deposit. If you deposit $99 or $200, you may qualify for a higher credit line, up to $3,000. The card’s annual percentage rate (currently 22.9 percent) and other fees are comparable to other bank credit cards, which is unusual for a secured credit card.

Prepaid cards
Prepaid cards look like and are used just like credit cards, but they function more like debit cards. Your credit line depends on how much money you have loaded onto the card, and each time you make a purchase, you draw down those funds. In other words, with a prepaid card, you don’t have access to a line of credit. You can spend only the money you put into the card account.

Pros: It’s easy and fast. Anyone can get approved for a prepaid card. There are no credit checks and no lengthy application processes.

Cons: Prepaid cards have two main drawbacks: They come with a multitude of fees, and they don’t help you build a credit history.

Prepaid cards have been criticized, not just because they charge a wide variety of fees, but because the pricing and structure of most prepaid cards makes it difficult to determine how much it will cost you to use them.

“The fees associated with these cards resemble a mine field where the wrong step by the cardholder could result in monthly fees greater than $30,” says credit expert John Ulzheimer in an emailed statement. “This is well in excess of any fees being charged by banks for properly managed checking accounts.”

Watch out: Never get a prepaid card without carefully reading the terms. Most not only feature a monthly fee (typically $3 to $5), but also charge extra for ATM withdrawals, customer service calls, paper statements and, in some cases, for loading money onto the card.

Best bet: For an (almost) fee-free prepaid card, check out the American Express Prepaid Card, which charges only one fee: $2 for ATM withdrawals (you get one free withdrawal a month). Cardholders are automatically enrolled in Amex’s Make Your Move program, which means that, if you develop a good track record with the card, you may be invited to take another step up the credit ladder and apply for an American Express Charge Card.

The bottom line
If your main purpose is to rebuild credit, a reasonably priced secured credit card will be your best choice. It gives you a chance to use credit and build a history of regular payments.
“You have to use credit to rebuild credit,” says Melinda Opperman, vice president at Springboard, a nonprofit consumer credit management service. “And credit-building is so important. Your credit score is like your financial DNA. It determines your financial success in life in so many ways.”

Credit card offers for consumers with bad credit can vary widely, and so it pays to do your research before you apply so you don’t pay through the nose for a card that offers little value.

“The biggest mistake people with bad credit make is getting a card with fees and interest rates so high that they end up paying way too much for credit,” says Mike Sullivan, Director of Education for Take Charge America. “The fee structure on subprime credit cards has gotten better since the CARD Act, which took care of some of the most onerous offerings. But we still hear of people who are paying significant amounts to get credit.”

To help you get started, here are seven questions you should ask when comparing bad credit credit cards.

1. Which bank is issuing the card?
Credit cards issued from the same bank often have very similar terms, so knowing that saves you some time reading through the terms for every single credit card offer. Some issuers, for example, are known for tacking on excessive fees, so if you notice that several card offers from the same bank have a questionable number of fees, look elsewhere.

“It is important who you do business with,” says Sullivan. “There are certain institutions that seem to thrive on people with poor credit.”

Sullivan recommends that consumers consider banking with an institution they already know well, such as a local bank or credit union. “Generally the terms for local banks will be much better,” he notes.

2. Are the terms clearly stated?
If you have to look a long time on the online credit card application to find the disclosure of terms and fees, or if the terms are not disclosed until you have submitted your information, think twice about the card. That’s usually a sign that the card issuer does not use above-board business tactics.

3. What are the fees?
Many cards for consumers with bad credit have a confusing array of fees, which makes it hard to determine the real cost of the card. To determine how much you’ll really have to pay, make a note of all the fees, including opening fees, annual fees, monthly maintenance fees and so on.

Then add them all up. If the fees are assessed before the card is used for the first time, subtract them from the minimum credit line offered. This will give you an estimate of the amount of credit you are likely to have available when you receive the card.

4. What is the APR on purchases?
The APR, or annual percentage rate, is the interest rate charged on the purchases made to your card. If you have bad credit, the purchase APR will typically be high –- sometimes as high as 49.99% or more. If you plan to carry a balance on the card, that’s a steep price to pay.

5. How does the total overall cost compare to similar cards?
Card offers for people with bad credit vary considerably between issuers, even more so than for regular credit cards, so it pays to compare cards that seem similar.

For example, the Capital One Secured MasterCard comes with an annual fee of $29 and a 22.99 percent purchase APR. For an initial deposit of $49 to $200, you will get a credit line between $200 to $3,000 if approved (all terms are subject to change).

For other card issuers, the opening fee is $75 for a $300 initial credit line (and a $300 security deposit), and you pay a 49.99 percent purchase APR on balances.

6. Is there a grace period?
The grace period is an interest-free period. If you pay your balance in full each month, credit cards typically offer about a 21-day period before they begin to charge interest on the new purchases.

However, some subprime credit cards don’t have a grace period. In this case, interest charges accrue from the day you make the purchase. For secured credit cards without a grace period, you’re charging against money you have deposited, so you’re essentially paying interest to the bank for lending you your own money. If this sounds like a bad deal, it’s because it is.

7. Will it help improve your credit score?
The two main types of credit cards available to consumers with bad credit are prepaid cards and secured credit cards. Prepaid cards are cards that you prepay money to before you use the card. As with a debit card or checking account, you simply draw down the amount over time. With a secured credit card, in contrast, you deposit an amount to ‘secure’ a line of credit.

A key distinction between prepaid cards and secured credit cards is that for secured cards, your payment history is typically reported to the credit rating agencies, enabling you to build credit. Prepaid cards generally don’t offer that service, which is a major disadvantage for those needing to build credit.

“There are a few instances, where it is necessary to have a credit card, such as when you need to rent a car or buy something online,” says Sullivan. “However, the main reason for getting a credit card if you have poor credit should be to reestablish your credit.”

“If in doubt, ask the lender if they report to the credit bureau,” adds Kim McGriggs, Community and Media Relations Manager at Money Management International. “A secured card can be a great help to establish credit, albeit at a cost. I recommend it for people who are just starting to rebuild the credit until you can move into a more traditional credit card.”

(Updated 11-29-11. Originally published 11-05-2009.)

Well, yes, say experts. When it comes to finding that special someone who thinks you’re special too, having bad credit can be a significant obstacle. According to a survey from Money Management International, love still reins supreme as the most important factor people consider in relationships; but finances count, too — particularly now that would-be couples have lived through one of the worst recessions in recent history.

In Money Management International’s 2010 Love and Money survey, 42 percent of respondents said that a partner’s attractiveness was “highly important” to them in a relationship. But almost as many, 40 percent, preferred a partner with a good credit history, and 43 percent preferred a partner with a low level of debt. In addition, 52 percent considered a  partner’s job security to be highly important, and 35 percent counted adequate savings as an important relationship factor. And while fewer men than women saw bad credit as an obstacle to romance, it still mattered to them.

Of course, it’s common sense to not want to inherit someone else’s money problems. Money issues are typically one of the most challenging topics that newlyweds have to contend with; so why stack the decks against you if it can be avoided?

“A person’s credit really gives a snapshot picture of that person’s attitude and habits around money,” says Bethany Palmer, who is co-author with her husband Scott of “First Comes Love, Then Comes Money.” “It tells you a lot about how the other person views money and how they usually manage it. A bad credit report is a red flag that money will probably be an issue if you enter into that relationship.”

Unfortunately, the face of bad credit is not that obvious. People don’t exactly go around with a T-shirt with their credit score printed on it. Indeed, the tell-tale signs of poor credit habits are often the opposite of what one would expect.

“When people are dating someone, they go out of their way to be attractive,” says Michael Sullivan, Director of Education at Take Charge America, a nonprofit credit counseling agency. “So guys tend to spend a lot on dates and gifts, and girls on clothes and hairdos to be more attractive. Many people spend more than they can really afford, and they don’t reveal their true selves.”

Sullivan tells the story of a woman who was dating a guy with all the outward signs of financial stability. He drove a BMW, dressed in expensive designer clothes and treated her to lavish dates. He was obviously well off. Or so she thought. But then, one day, he lost his job, and it turned out that he was leveraged to the hilt. Without a regular income, his fanciful lifestyle quickly fell apart—and along with it the storybook romance.

“Way too many relationships fail because people lie or don’t reveal enough about their credit situation before getting into a relationship commitment.” says Sullivan. “I always tell people that before getting serious with someone, you have to look at the person’s credit report. There are enough surprises in a new relationship as it is.”

So, what can you do to make sure that you won’t wake up the day after your wedding and discover that you just inherited $50,000 in credit card debt? Or just as bad, that you won’t be able to buy a house together for a long time because of your spouse’s poor credit rating? Here are five tips to avoid those unpleasant surprises:

1. Know the warning signs.
Some warning signs are obvious, such as when a credit card gets denied or when your partner seems to have a problem with paying bills on time. Other signs are more subtle and mainly show up as small inconsistencies. For example, if your special someone drives an expensive car or otherwise spends a lot of money, yet has a job with an average income, there’s a good chance that he or she might be living beyond their means.

2. Be alert to what isn’t said as much as to what is said.
If you try to discuss finances, but your partner repeatedly skirts the issue, it’s another warning sign that something might be amiss. Communication is the key to every relationship, so if your partner doesn’t want to talk about money, there’s an excellent chance that there is a problem.

3. Don’t be afraid to ask about a partner’s financial history.
Even in established relationships, partners often avoid bringing up money concerns or issues because they don’t want to rock the boat. However, if you can’t trust your partner to communicate openly about money, it’s usually not a good basis for a relationship.

4. Exchange credit reports.
Sullivan recommends scheduling a time when you sit down and look at each other’s credit reports. Use this as a springboard for getting a sense of each other’s credit compatibility. Do you share the same values around money and credit? If you rarely use credit and your partner has a portfolio of eight credit cards with balances, it may not be a deal breaker, but it’s certainly something you’d want to know about.

5. Eliminate money surprises.
Just knowing someone’s credit score and whether or not they have credit card debt is not enough. Bethany and Scott Palmer point out that it’s important to know a partner’s money personality as well — particularly if you’re getting serious. We each have a basic attitude towards money that tends to guide our decisions, and couples need to understand where they each are coming from and how their attitudes differ.

The Credit CARD Act of 2009 bars issuers from charging high account set-up fees. In the past, the initial fees for obtaining a credit card for people with bad credit ran as high as 75 percent of the initial credit limit. As a result, cardholders could be charged a whopping $175 in fees for a card with just a $250 credit limit. However, thanks to the Credit CARD Act, total fees on subprime credit cards now cannot exceed 25 percent of the available credit limit during the first year.

But did the CARD Act succeed in curbing the worst abuses of fee harvester credit cards? Surveying the credit cards available for people with bad credit in today’s market, there is good news and bad news. On the one hand, there are now decent, viable options available to people with fair or bad credit.

On the other hand, even as card set-up fees have been reduced to the mandatory 25 percent of the credit limit, some subprime card issuers have introduced new tricks and traps for consumers.

So if you have poor credit and are getting ready to apply for a new card, there are still plenty of reasons to proceed with caution. Here are some features that you should watch out for when shopping for a new card.

Worst Credit Cards for Bad Credit
The dubious distinction for worst credit cards for people with  poor credit continues to go to certain types of secured cards. Secured credit cards are usually the recommended card choice for people looking to rebuild their credit. But not all secured cards are the same.

Unlike prepaid credit cards, where money is simply deposited for use and there is no credit line, secured credit cards have a credit line that is “secured” by a back-up deposit. Monthly payments, in turn, are reported to all three credit rating agencies, enabling cardholders to build their credit faster.

Following the Credit CARD Act, the fees for opening a secured credit card dropped significantly — making secured cards a better deal for consumers. So, for a card with a $200 limit, cardholders typically deposit $200 as security and now pay no more than a $50 fee.

However, some secured cards still feature terms that make them a questionable choice for people with bad credit. If you’re applying for a new card, some of the terms that you should watch out for include:

1. Credit Limit Increase Fees. A new breed of fees, credit limit increase fees were likely introduced by banks to make up for some of the lost income sustained after passage of the CARD Act. For some secured credit cards, such as the First Premier Bank Secured MasterCard and the Centennial Secured MasterCard, cardholders pay 25 percent each time they wish to increase their credit limit.

So for a cardholder who opens a secured credit card with a $200 credit limit, the fees paid to reach a $500 limit would total $125. And to reach a $1,000 limit, the fees would total $250. That’s in addition to annual fees that are typically $50 or more.

2. Higher Interest Rates. People with bad credit will always pay higher interest rates. But can you say 49.9 percent APR? Yes, that’s the interest charged on one secured credit card, the First Premier Bank card. The First Premier Bank card differs from other secured cards in that it doesn’t require new cardholders to pay a deposit of 100 percent of the credit limit. Instead, new cardholders are required to pay just a $95 deposit and, in return, they receive a $300 credit limit — and a dangerously high APR.

While the 59.9 percent APR is extreme, most credit cards for people with bad credit feature interest charges in the 19.99 to 29.99 percent range. These are variable rates, so should the prime rate begin to go up, these rates will rise even higher.

3. No Grace Period. Some subprime credit cards, such as the Applied Bank Unsecured Visa Gold card, have also done away with the grace period on purchases. Instead of giving you time to pay your credit card bill after making a purchase, they begin charging interest right away.

4. Confusing Annual Fees. While the Credit CARD Act put a limit to the set-up fees that subprime card issuers could charge, there is no limit on annual fees. The Applied Bank Unsecured Visa, for example, charges $125 in fees the first year and $15 per month the following year — effectively a $180 annual fee for a card with a 29.99 APR on purchases. The First Premier Bank card also charges a $75 annual fee the first year,a $45 annual fee after that and a monthly servicing fee totaling an additional $78 a year. That’s in addition to the card’s 49.9 percent APR.

Best Credit Cards for Bad Credit
The good news is that while there are still bad apples in the barrel, there are now a number of viable card options available to people who want to rebuild their credit.

If you have fair credit, the Orchard Bank line of unsecured and secured credit cards typically offer the best value, with interest rates ranging from 7.99 percent to 19.99 percent, depending on the applicant’s credit rating. Capital One similarly features a line of unsecured credit cards for people with less than excellent credit.

If you have bad credit, Capital One also offers some reasonably priced credit cards, including the Capital One MasterCard Secured Credit Card. The card comes with a $29 annual fee and a 22.99 percent APR. But it excels in featuring fairly standard credit card terms with no surprise fees.

When applying for a credit card for people with bad credit, keep in mind that these cards, at least initially, will not really give you access to any significant line of credit. Rather, they serve as convenient payment instruments, and if used wisely, can be important tools for building a better credit record and create a more secure financial future. With this in mind, here is our pick for the best credit cards for bad credit in different categories.

Orchards Bank’s Classic MasterCards
For cardholders looking to improve their credit by getting access to a credit card, one of the best credit cards on the market is Orchards Bank’s MasterCard. The card comes in both secured and unsecured versions; the card issuer determines which type to offer applicants during the application process, based on their credit profile. In other words, those with credit scores down in the deep end of the spectrum can expect to be offered a secured credit card, in which case a deposit is required as security against the initial credit line.

However, regardless of which version of the card a consumer proves eligible for, the Orchard Bank credit cards for people with bad credit offer some of the most attractive terms in the subprime market. Annual fees are reasonable, weighing in at $35 for the secured card, waived for the first year. Unsecured card holders pay between $35 and $74 the first year and between $39 and $79 per year thereafter. Depending on your credit score, you may also have to pay a processing fee between $19 to $39 when applying for the credit card.

Cardholders with secured credit cards pay a variable 7.9 percent APR on new purchases and balance transfers (a reminder to not keep a balance, since you’re paying interest on credit secured by your own money on deposit). The unsecured credit card feature higher interest rates, ranging from 14.90 percent to 28.90 percent APR. Both are variable rates that will move up or down in tandem with the Prime rate. Those with bad credit can expect to pay the highest interest rate in that range, so to avoid paying an extra 28.9 percent a year on your purchases, be sure to pay off the balance in full each month.

A key benefit of the Orchard Mastercards for bad credit is that, for cardholders who manage their account properly, Orchard Bank’s card offers regular credit line increases. Best of all, the card reports to all three credit bureaus monthly, so good behavior pays off fast.

Other Credit Card Options for People with Poor Credit

Prepaid Credit Cards. For those less concerned about building credit and more interested in getting the convenience of paying with plastic, a prepaid credit card can be a cheaper and more convenient way to go. Because these cards don’t extend any credit, anyone can get approved regardless of credit history; users simply spend the money they load onto the card.

Low-cost options for prepaid credit cards include the Mango and YAP cards. Card usage is free for cardholders who load more than $500 into their account each month; otherwise the monthly fee is a reasonable $5. Loading money onto the card is free as long as it is via a bank account, online, or via direct deposit; if you load cash with select retailers, there is a $4.95 fee. There is also a $2 fee for cash withdrawal in addition to the ATM fees.

Local bank credit cards may provide another option for people with poor credit. Consumers who hold an account with a local bank will have an easier time obtaining a credit card from that financial institution. Acquiring a bank credit card can be another great way to improve your credit score, and build a line of credit over time at a reasonable cost.

Prepaid credit cards offer the convenience of having a credit card when making online purchases or making plane, hotel, or car reservations. Also known as stored-value cards, prepaid credit cards basically function like a debit card, with the one major difference that they are not linked to a bank account. Cardholders simply load money directly onto the card.

Many prepaid credit cards come with numerous, obscure and confusing fees, so check terms carefully before applying for a prepaid card. To avoid nasty surprises, here are our picks for two low-cost, almost fee-free prepaid credit cards for 2010.

Mango MasterCard Prepaid Credit Card

The Mango Prepaid Credit Card is one of a new breed of prepaid credit cards, which is as close to a free prepaid credit card as you can get. The fee structure is fairly easy and simple to understand, and for cardholders who load more than $500 into their account each month, the monthly fee (otherwise a reasonable $5) is waived.

Unlike many other prepaid credit cards, the Mango MasterCard Prepaid doesn’t charge cardholders a multitude of fees. There is no activation fees or transaction fees, you can get balances and track transactions for free on your mobile phone. Loading money into the account is free as long as it is via a bank account, online, or via direct deposit. If you load cash with select retailers, there is a $4.95 fee. There is also a $2 fee for cash withdrawal in addition to the ATM fees.

Like for other prepaid credit cards, even people with bad credit or no credit history can be accepted for the Mango Prepaid Card. A potential drawback of the card is that all card services are electronic or happen online. To really benefit from this card, you must be comfortable with receiving electronic statements and checking your balances online or via a mobile phone.

Capital One Prepaid Credit Card

Backed by one of the largest credit card issuers, the Capital One prepaid card for people with bad credit offers similar terms and convenience as the Mango card. The card setup fee is a modest $4.95, and it is refunded for cardholders who make their first direct deposit within 60 days of card activity. The monthly maintenance fee is $4.95 per month, and there are no transaction fees, and no card loading fees for direct deposits.

This card does come with several types of fees you need to be aware of: cardholders pay $2.00 for ATM withdrawals (in addition to the bank ATM fees), $5.95 for loading cash at retailers, and $2.00 for customer service calls involving a line agent (automated customer service calls are free. Card balances can be checked for free online, but to get a paper copy of your transaction history by mail, the fee is $1.95 for each month it is requested.

See here for prepaid credit cards popular among parents of teens and tweens.

Some of the triggers for a poor credit rating include having a lot of debt, not paying bills on time or not paying them at all, and declaring bankruptcy at any point.

There are three major types of credit cards for people with bad credit: unsecured credit cards secured cards, and prepaid credit cards. They have different pros and cons, and choosing the best depends on your specific credit situation and what your goals are. Here is a brief overview.

Unsecured Credit Cards

Unsecured credit cards can help rebuild credit faster, because most issuers of unsecured credit cards report every month to the major credit rating agencies. The fees could be quite high and the initial credit limit is typically small. However, it does increase over time if you pay your credit card bills on time.

If your goal is to rebuild your credit history, unsecured credit cards are a great tool, if you can afford the costs. The fees vary greatly between issuers, so read the terms and conditions to find the card with the lowest costs. To improve your credit rating using an unsecured credit card, always pay on time, and as much as possible, pay the balance in full every month.

Unsecured credit cards include the First PREMIER® Bank MasterCard® and Visa® cards, and the Centennial® Gold MasterCard®/Visa®. These credit cards for people with less than perfect credit are all issued by First PREMIER® Bank and offer similar terms.

Secured Credit Cards

Secured credit cards are a popular choice for people with bad credit. Acceptance is easier and the fees are comparatively lower. Like other bad credit credit cards, secured cards provide the convenience of credit cards and a means of rebuilding one’s credit.

As the name implies, this type of credit card is secured by a deposit into a special account held with the credit card issuer. Typically, a minimum deposit of $200 to $300 is required.

Secured credit cards are generally the least expensive in this category. The best secured credit cards charge no account opening fees and have a low annual fee, typically around $50. For more information about secured credit cards, check out this article on Bankrate.com, 10 Questions Before Getting a Secured Credit Card.

Prepaid Credit Cards

With a prepaid credit card, the cardholder doesn’t receive any line of credit, but rather spends money stored on the card via a prior deposit.

Prepaid credit cards can be used in all the same ways as a regular credit card, and still carry the Visa, MasterCard brand name. You simply need to make sure that you have preloaded enough money to fund your expenditures.

The fees of prepaid credit cards are often higher than for secured credit cards, however. Read the credit card terms and conditions and print the fee structure, so that you can avoid actions that incur extra charges.

The best prepaid credit cards are the ones with the lowest monthly fees. For example, check out Facecard Prepaid MasterCard® and Wired Plastic™ Visa® Prepaid Card.

Credit cards for people with poor credit offer a great short-term solution, but your best long-term option is to rebuild your credit rating so you can apply for the best credit card deals. For more advice on how to restore your credit rating, see this great article on Bankrate.com: Five Steps for Improving Your Credit Rating. Another helpful resource is Consumer Credit Counseling Service (www.cccservices.com, 800-355-2227), which offers free assistance and debt counseling.

As with any credit card, study the fine print carefully before you apply. In the case of these cards, it is even more important that you educate yourself on what you are getting and what the card can and cannot do. Here are some of the things to look for when considering a catalog credit card.

What products and services will be available to you? If you can, check out the website or catalog of the card issuer to see what you can purchase with your card and to make sure these are things you really need. As much as possible, compare the prices of the items with what you would typically pay in a regular store or website. If they require you to be a member to see the prices, it could be an indication that the items for sale are priced above typical market prices.

What will it cost you to get the card? Catalog cards mostly come with a one-time application fee, often around $150. Some of this may be refundable, if you cancel the card within a pre-specified time period. Study the terms carefully to see how much of a refund you are entitled to if you decide to cancel, and how long you have to cancel. Also check if there are any monthly maintenance fees or other fees associated with using the card.

Are there any hidden fees? Many catalog cards offer a slew of attractive additional services, such as unlimited access to your credit report, emergency road assistance, and prescription discounts. But remember, there is no such thing as a free lunch. Although it may sound like these services are included in card membership, you typically just get them free for 30 days. After that, you will pay a monthly fee for these services, often around $10 a month for services that give you free access to your credit report, and around another $20 a month for services like prescription discount or emergency road assistance.

In short, you could easily spend upwards of $30 a month for services you would otherwise not sign up for. That’s $360 per year, considerably more than the savings you are likely to accrue. You are often automatically enrolled in these services when you sign up for a catalog credit card, so read the fine print, and be sure to cancel any services you don’t want within the 30-day trial period.

What are the terms for getting the bonuses? Many cards feature attractive bonuses, such as a grocery coupon card, if you sign up for the card. Again, study the terms carefully to determine what the requirements are to get the bonus. In some cases, the issuer will require you to be enrolled for six months in an elite program for which you pay a monthly fee. A typical monthly elite member fee is around $20, or $120 over six months. This is a costly way to get grocery coupons, if the services featured as part of the elite membership are not something you really need.

How do you make the monthly card payments? For most catalog cards, when you submit the application for the card, you also authorize the card issuer to debit your bank account for the application fee and, each month, for the minimum monthly payment. If you always keep your checking account current and have enough money to pay for these charges, this should not be a problem, as long as you are aware that the charges are coming. If not, you could end up bouncing checks and paying costly NSF fees.

How often does the card report to the credit bureaus? Check the terms to see how often the card issuer reports your card activity to the credit bureaus. You want a card that reports monthly, preferably to all three credit bureaus, but at least to one. As long as you are regular with the monthly payments on your card, frequent reporting to the credit bureaus will help you to more quickly rebuild your credit rating.

What is the annual fee and APR? Most catalog cards have no recurring annual fee and charge no interest on purchases. But remember, you never get anything for free. Such favorable terms could be an indication that you pay a premium for the products available for purchase from the card issuer.

The Bottom Line

If you set clear goals, a catalog credit card can be an excellent tool for rebuilding your credit rating. Pay your dues on time and leave a small balance on the card, just enough to show up on your credit report. But be sure you have the financial discipline to use the card. If you get carried away and run up additional debt with card purchases you don’t really need, a catalog credit card will just undermine your financial situation further.

With an initial credit line of upwards of $7,500 and offers of frequent credit line increases, these cards can appear like a real find. This is especially the case for people with bad credit, who otherwise can choose only among unsecured credit cards with limits as low as $300, or prepaid credit cards, where money has to be preloaded onto the card before it can be spent.

There is one critical difference between catalog credit cards and standard credit cards, however. You can use a catalog credit card only to purchase products and services sold by the card issuer. In other words, a catalog credit card will not give your budget the cash infusion that a standard credit card would add.

The main advantage of getting a catalog credit card is that it enables you to faster rebuild your credit and get offers for standard credit cards with high limits. Catalog credit cards report frequently to one or more of the major credit bureaus, and as long as you are regular with your payments, this will help you to quickly make strides towards improving your credit.

Here is an example:

If you apply for an unsecured credit card for people with bad credit, the best you can hope for is an initial credit line of $300. This credit line will increase regularly as long as you keep current on your credit card payments. However, it will take a long time to build up to the kind of credit line you get with a standard credit card.

In contrast, if you take out a catalog credit card with a $7,500 line of credit, for example, your credit report will show that you are responsibly handling a credit card with that high a credit line. Over time, this might prompt other lenders to offer you a standard credit card with a high limit, e.g. $5,000.

If you decide to get a catalog credit card, beware of impulse purchases that get you deeper into debt. You will receive many tempting offers for things you may or may not need. Before spending money on something, evaluate if this is something you would normally purchase, and if the cost is reasonable.

Also be sure to carefully study the Terms and Conditions of the card, and play the rules to your advantage. Otherwise you could end up spending money on a card that offers you a lot of services and goods that you don’t really need.

The key to benefiting from Catalog Credit Cards is to educate yourself and become a savvy consumer. Read the next section to learn the important things you need to know if you are considering taking out a catalog credit card.