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Thursday, December 3rd
People with bad credit - or limited/no credit history at all - can still qualify for a credit card. These cards may have higher interest rates than a traditional credit card, or they may require the user to put down a deposit to "secure" the card against any purchases that are made. But, used appropriately, "bad credit" credit cards can be an excellent way to slowly build up a good credit score while getting the convenience of making purchases the same as with any other type of credit card.
In today's society, it's hard to get by without a credit card. From renting a car to shopping online, credit cards are used for everyday purchases and major expenses like home remodeling and big vacations.
But, for people with bad credit - or those who have limited-to-no credit history at all - it can be difficult to get approved for a credit card. Many banks and other financial institutions want their cardholders to have a good credit history - because those businesses don't want to lose money when customers don't pay!
The good news? If you have bad credit, you can still get a credit card. Here's what you need to know.
Secured vs. Unsecured Credit Cards
Because you're considered a riskier customer than someone with a high credit score, credit card companies use two strategies to reduce their risk when giving you a card: secured cards that require a deposit, and unsecured cards with much higher interest rates.
A secured card means that you'll have to deposit money with the credit card company - usually somewhere between $100 and $1000, depending on the card issuer and your personal preference. The amount of that deposit usually becomes your credit limit on that card, but it isn't used to actually pay off your monthly spending on the card. Instead, it's used as collateral, in case you don't make a payment. The good news is that once you've used that card responsibly for a while - several months to a year, also depending on the terms of the card issuer - you'll get that deposit back. And, the financial institution will probably offer you a traditional credit card with a higher spending limit, now that you're on your way to building healthy money habits.
An unsecured credit card doesn't have a deposit requirement. But, if you opt for this type of card for people with bad credit, expect higher interest rates and other fees. After all, the bank has to make money somehow, and if they think you're likely to bail and not pay off your balance eventually, this is how they do it. Store credit cards (like those offered by big-box electronics stores or clothing retailers) are usually in this category, but you can't typically use these cards at other places; their spending limits are often low and interest rates are high.
Considering a Credit Card for Bad Credit?
So, you've decided that a credit card would be a good strategy for improving your credit score and helping make the purchases you need. You're probably right!
But, as you consider all of the cards out there, don't be persuaded by slick marketing or pressure tactics that might stick you with a credit card that hurts you more than it helps you financially. Here are some of the criteria to keep in mind as you choose the right credit card for your situation:
TopConsumerReviews.com has partnered with Lending Tree to help you find the best credit cards for people with bad credit. We hope this information will tell you everything you need to know to pick the perfect card for your financial situation!
Sworn off credit cards due to irresponsible spending? Don't act too fast! You may be in denial if you think you can manage without a credit card. Access to a Visa or MasterCard is necessary for renting cars, shopping online and even holding reservations at certain restaurants. Thankfully, credit cards may have gotten you into debt but can also help get you out. Here's how to improve your credit score with credit cards:
Responsible credit card spending is the key to improving your credit score. Make payments on time, mind your spending limits and even apply for a secured card if needed to get your credit score headed in an upward direction.