Types of Credit Cards for People with Bad Credit

Many people end up having poor credit for one reason or another, be it because they have never had a chance to establish credit before, or because they suddenly lost a job, or even because of identity theft. Regardless of the reason it can be extremely difficult to regain a good credit rating because no one will give credit. It is a catch-22 – you need credit to get credit.

For those with exceptionally bad credit the best choice (probably the only choice) for a credit card is the secured or credit-builder card. These cards are specifically designed to help rebuild credit, and as such they are not recommended for those with good credit already. This is because they are solely for the initial building process.

The process of building a good credit score is much like a ladder: you step from one card to another gradually improving as you go. These cards are the very bottom; from here you move on to low limit high interest cards and then continually up towards high limit.

There are two main types of credit-building cards:

• the normal (but high interest) credit card
• the secured credit card.

The secured credit card functions by requiring the holder to maintain a collateral balance. For example, if you put $1000 in a special savings account, you can charge up to $1000 – but the money you spend is officially credit and you use the card like a normal credit card. The only condition is that you cannot exceed your collateral balance.

Because the secured card is essentially a credit building service all of the cards charge an annual fee. This fee varies between companies and is often supported by an application fee. Be very careful, read the fine print, and be sure to check our list of secured credit cards.

If your situation is not quite this dire you can go for a credit-builder card, which is a normal credit card except with higher than average monthly interest. These cards are for those with very bad credit and if handled wisely they do help build you back up to a stable position. Whichever option you choose: be careful, read the small print, and be sure to check our list of selected cards.

 
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