Bad Credit Credit Cards for People with Bad or Poor Credit
Bad Credit Credit Cards for People with Bad CreditThere are 4 types of "credit cards" that people look for when they have bad credit. They are
I'm going to go through each of their pros and cons and tell you which type of card to get.
Prepaid Credit Cards - Prepaid Credit Cards are not really credit cards in the traditional sense because you are not extended credit at all by the card issuer. Instead, it functions much like a debit card where you have to "load your card" either through payroll direct deposit or some other means. And you can only spend what is "loaded" in the card. Because, there is no risk of you ever getting into trouble, almost everyone will get approved for a prepaid card because there is no credit risk.
However, because you are not extended credit, prepaid credit cards do not report to credit bureaus and hence, you cannot build a credit history with them. However, they may be useful for those who cannot seem to control their spending if they carry a regular credit card.
Unsecured sub-prime credit cards - There are many unsecured credit cards that are targeted at people with bad credit. However, these cards come with very high fees. You typically have to pay a one-time application fee and even a one-time processing fee. These fees alone could come up to over one hundred dollars. Furthermore, you have to pay an annual fee and a monthly maintenance fee on top of that. That means that you'll most likely be paying over one hundred dollars annually just on fees.
Typically, you are given an initial credit line of about $300 (which is really just over a hundred dollars because of all the application fees you have to pay at first). Then over time, you might get periodic credit limit increases of about $50.
The problem with these sub-prime cards is that even though it is unsecured and they report to credit agencies, the fees are high and the credit limits are really low. The credit utilization ration (debt vs available credit) is very important component of your credit score. Using for example two hundred dollars when you only have a three hundred dollar line does not really look good.
Store Credit Cards - Many folks also try to get a store credit card when to start building a credit history. While you could certainly do this, there are a couple of things that you should be aware of. Firstly, with store credit cards, you can only use them at that particular store. Secondly, the interest rate tends to be really high (as in high teens). Lastly, most store credit cards will only extend you credit for at most up to a thousand dollars. Once again, that does not help your credit utilization ratio at all.
Secured Credit Cards - Secured credit card is the best type of credit cards for people with bad credit or no credit. Before we get into the reasons, let's briefly look at what is a secured credit card. A secured credit card gives you a credit line based on a deposit that you put with the credit card issuer (hence the term secured). You will be given a credit limit that is (most of the time) the amount of your deposit. Like unsecured sub-prime cards, secured credit cards do not have their nasty fees. Instead, they usually just charge an annual fee of about $50 on average. Most secured credit cards report to credit bureaus and some report them as unsecured credit as well. The main advantage secured credit cards have over unsecured ones is that aside from much lower fees, you can have a better credit utilization ratio simply by depositing more money for your card. Most secured cards allow you to deposit up to $5,000. In fact, I would suggest opening 2 secured credit cards if you have the means to do so. Utilizing a few hundred dollars in credit versus having a $5,000 credit line or more looks better on your credit report too.
Summary - To sum up, I would say that secured credit cards are probably the best type of cards to get if you have bad or poor credit. They are much more cost effective and better at rebuilding your credit than unsecured sub-prime cards or prepaid cards.
Among all the credit cards in the market target those with bad credit, the Orchard Bank Classic MasterCards is probably the best credit card out there. Their fees are moore reasonable than other cards. Depending on your credit, you will either be approved for a secured credit card or a regular unsecured credit card. There is also the Orchard Bank Visa Cards for those who want a Visa®.
Below are a couple of suggestions for those looking a prepaid credit card.
The The Mango™ MasterCard« Prepaid Card is perhaps the best prepaid credit card on the market today because of its low fees. There is no activation fees as well. If you load at least $500 into your card, the monthly fee is waived as well. This card will appeal to those who can load $500 into their card and are senstitive to fees. You can read our review of the Mango Prepaid Card here.