If you have poor credit but are still interested in getting a credit card or two, you can take heart knowing that there are some available. They may not have the best terms and lowest interest rates, but they are available to all but the worst of credit risks. On a positive note, you might be pleased to know that according to the Federal Reserve consumer credit has increased nearly 4% in 2011, despite the lagging economy.
Use our credit card finder to get started in your search for a card to help rebuild your credit.
There are essentially three types of credit cards for individuals with poor credit history. The first two, secured and prepaid credit cards, require money from the user upfront. The third type of card is very similar to a standard credit card but with higher interest rates, lower credit limits, and an annual fee. We’ll explain how all three work in the subsequent paragraphs.
How does a secured credit card work?
A secured credit card is ideal for people with poor credit because it gives them the ability to practice managing their money without posing a terribly high risk to the credit card issuer. In order to get a secured credit card you must deposit a certain amount of money with the issuer to be used as collateral in case you default on your payments. Whatever amount you deposit will also be your credit limit.
The money deposited gains interest for the entire time the bank holds it, and it will not be touched as long as you make your regular credit card payments on time. The only purpose for the deposit is to give the bank something to pay your bills if you fail to do so. Generally, you will be offered a refund of your deposit along with an upgrade to a standard credit card after you complete a year or so of managing your credit with a secured card.
How does a prepaid credit card work?
The prepaid credit card is technically not a credit card as such; it is more like a debit card in that you “charge” it by paying money to the issuer up front. For example, if you purchased a $100 prepaid credit card from your local department store, the clerk at the store would run the card through an electronic device, which codes it with a $100 limit. You can then use the card with any brick-and-mortar or online retailer that accepts credit cards. Once you reach your $100 limit, the card will no longer be accepted.
Prepaid credit cards don’t help to repair your credit, but they do allow you to spend money without having to carry cash with you. They also give you some of the same consumer protections afforded customers using standard credit cards of the same brand. At the same time, there are no monthly bills to pay and nor interest charges or annual credit card fees.
How does the standard credit card work for poor credit customers?
Under certain circumstances, you can get a standard credit card even with a poor credit history. A small handful of banks are willing to take a risk with poor credit as long as it is not extreme. These types of cards typically will have annual fees ranging between $35 and $50, as well as higher-than-normal interest rates. The exact amount of your annual fee and interest rate will depend on your credit history.
Usually a card of this nature begins with a very limited credit line; you might expect $3,000 or less depending on how poor your credit is. You’ll be able to use this card just like any other standard credit card and no one but you and your bank will know of your credit conditions. You’ll be able to charge up to your pre-approved limit, use the card at ATMs, and present it for ID purposes. As your monthly bills arrive, you’ll need to pay them on time in order to rebuild your poor credit.
As long as you are faithful in making all credit card payments on time, you could be eligible for a higher credit limit and the cancellation of your annual fee after the first year. If so, you will have gone quite away in repairing your credit history. If you continue using the card responsibly and pay your bills on time, you could see a very healthy credit report in just a few years time. If you’d like additional information about repairing poor credit please check the Federal Trade Commission’s Facts for Consumers.
With the credit card chaser, you can compare multiple credit cards available to those with poor credit.