Credit Cards and Bad Credit Programs

If you have bad credit, you usually face difficulties trying to obtain loans, including credit cards. If you use credit cards wisely and make your payments on time, credit cards can help you build credit. Acquire a secured credit card and use it as part of your bad credit program.

Features

If your credit score is poor, lenders see you as a risky borrower. A regular credit card is usually unsecured, which means that the holder doesn't provide any asset for the lender to seize in case she doesn't make her payments. Some lenders are willing to provide you with a secured credit card. With a secured credit card, you deposit money into a savings account. If you miss any payments, the lender uses the money in the account to cover the unpaid balance.

Benefits

If you make prompt payments with your secured credit card, you can slowly build your credit. The lender reports your good financial behavior to the credit bureaus, and your credit score rises. Eventually you will be able to qualify for regular credit cards and other loans again. Using a secured credit card also allows you to train yourself to be more disciplined with credit. It provides convenience because some retailers only accept credit cards.

Drawbacks

A secured credit card has several disadvantages compared to an unsecured credit card. You usually have to pay high application and processing fees. The interest rate on an unsecured credit card is also higher compared to an unsecured credit card. These charges reflect the premium that your lender charges for the added risk of taking on a risky borrower. It may take a few years of paying your bills on time before you qualify for an unsecured credit card.

Warning

The Federal Trade Commission warns against firms that make misleading claims in their advertisements to attract individuals with bad credit. These advertisements make it seem like you can get a credit card simply by calling a number. The firms leave out information like the cost of calling, various fees and eligibility criteria.

Be wary of advertisements promising easy credit, because legitimate credit companies always examine credit scores. Also avoid credit repair companies that promise to fix your credit history for a fee. Nobody can instantly repair your credit worthiness.