When you want to rebuild your credit after a time of financial difficulty in the past has left it damaged, secured cards for bad credit applicants are one of your most viable options.
A secured card will allow you to have a credit line and process credit card payments for online and other purchases, where a credit card is highly convenient or even absolutely necessary. And it will give you the opportunity of earning your way to a higher credit line and, eventually, an unsecured credit card.
How do secured cards for bad credit cardholders work?
There are as many different types of secured credit cards as there are unsecured ones, and therefore, you should definitely compare terms and shop for the best possible deal. Don’t assume that you have to take the first offer you qualify for, even if you don’t like it: most likely, you really do have additional options.
All secured cards require you to deposit a specified amount of money with the card company in order to get approved for the card. Eventually, you get that money back, so long as you pay back your balance. But in the mean time, it “secures” the card (as collateral).
Some credit card lenders will make your credit line exactly the same as the security deposit. Others might make it 50% higher, double, or triple the deposit. And this can vary based on your precise credit score as well.
Your APR will be higher than most unsecured cards, as will most fees. But these rates can come down as you continue to make on-time monthly payments. With some secured cards for bad credit, you can increase your credit line (without adding to the deposit) as you pay on time and even “graduate” to an unsecured card.
What about prepaid debit cards?
You can use a prepaid debit card to make any transaction you could make with a debit/credit card. The problem is you have to keep reloading them (for a fee) and you cannot repair damaged credit with this type of card.
The reason that a prepaid debit card won’t help your credit rating is that it does not involve a line of credit. There is no way to “pay on time.” You just load and spend, and load again.
Also consider payday loan credit cards
Many people are not aware that payday lenders will sometimes provide (optionally) a credit card through which the loan can be processed and repaid.
Payday loan cards are not secured, as such, though the payday loan itself may be. When you use such a card to take out a payday loan, you no longer need an active bank account as a criteria for approval. In fact, the payday loan card receives your paycheck electronically and acts in lieu of a checking account.
Payday cards will help you improve your credit score if you make all payments on time, and since payments are auto-deducted from the card, you won’t forget to pay on time.