Having bad credit or no credit can affect us in many ways. Poor credit can prevent us from securing a home loan, auto loan or personal loan. In fact, it can even prevent us from securing an apartment or a job! Clearly, dealing with bad credit or no credit can be difficult and frustrating, and it can have a big impact on our lifestyle.
Now, the Good News
All is not lost! Your credit mistakes can be left in the past, as long as you make a commitment to building your credit and responsibly handling your credit.
However, to do this, you must begin proving your credit worthiness to creditors. Many consumers with bad credit or no credit often ask: how can I prove my credit worthiness to creditors when they won’t give me a chance?
Your Credit Card Options with Bad Credit or No Credit
Luckily, there are many creditors that will help you build or rebuild your credit by offering credit cards specifically aimed at those with bad credit or no credit.
Credit cards for consumers with bad credit or no credit differ from standard credit cards, as they are often secured. A secured credit card will ask that you “deposit” funds into the account, which will also serve as your credit limit.
Secured Debt vs. Unsecured Debt
A standard credit card is unsecured debt, meaning that if you don’t pay your debt, the creditor can’t take anything away from you, such as your home, your car or your savings account.
Creditors use your credit score, also called your FICO score, to determine whether you are a good credit risk before approving you for an unsecured credit card.
Secured debt, on the other hand, is tied to something of value; therefore, if you fail to pay, the creditor can take the item of value in return. Common types of secured debt include auto and home loans.
A secured credit card for consumers with bad credit or no credit is similar to secured loans; however, the cash you send to the creditor is used to secure the loan. The cash you provide to the creditor will likely equal the amount of your credit limit.
Here’s how it generally works: you send in a certain amount of money, such as $200. This money is then put into a special savings account by the creditor and used as collateral for your credit card.
In return, the creditor grants you a credit limit of $200. If you fail to pay your bill at any time, the creditor uses the money in your special savings account to cover the bill. However, don’t expect your relationship to continue with your creditor if you fail to pay your bill. Many creditors will immediately terminate your card if you show that you cannot responsibly handle your secured credit card.
The Benefits of Secured Credit Cards
A secured credit card for consumers with bad credit or no credit can be incredibly useful, as it can provide you with credit card purchasing power. But more importantly, it enables consumers, like you, with bad credit or no credit to rebuild their credit history and score.
Secured credit cards may even be available to consumers still in bankruptcy or recently out of bankruptcy. They may be able to provide consumers with the ability to begin rebuilding their credit almost immediately following a bankruptcy.
In addition to secured credit cards, there are a few creditors that provide unsecured credit cards to consumers with bad credit or no credit; however, the credit limit is typically low and the interest rate can be quite high.
If you are a consumer with bad credit or no credit and you are searching for a way to rebuild your credit, then you may want to consider the many advantages of a secured credit card. There is certainly nothing you can do to change the past, but there are ways to work towards raising your FICO score so that you can begin to enjoy all of the benefits of good credit.
