The Best Credit Cards for Bad Credit
By Eva Norlyk Smith, Ph.D.
May 22, 2009
When you want to apply for a credit card, your credit rating is all-important. It determines what type of card you can get approved for, the credit limit awarded, the annual percentage rate (APR) of interest charged on the credit card, and more.
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.
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.