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Credit card options for those with bad credit

Secured cards are one, but not the only, choice

By Ben Woolsey

Comparing credit card options may seem like a difficult exercise for those with bad credit or less-than-perfect credit. While major banks and credit card companies feel more comfortable dealing with those with the best credit, many offer credit alternatives to those with less credit history or less than perfect credit.

The spectrum of options runs from standard unsecured credit cards with relatively low interest rates to those with higher risk-adjusted rates to secured credit cards and finally to prepaid debit cards. How to determine what is right for you? It's probably best to determine how you plan to use a credit card and then start looking at your product options.

If you only need a card for emergencies or to book travel arrangements that require a credit card, perhaps a prepaid debit card is the best option.

If you need to use the card as a short-term borrowing vehicle then a standard credit card would best meet those needs. But if your credit isn't the best, you might end up paying a high interest rate. Make sure the cost of those borrowed funds is worth the expense in the long run because if you revolve a balance for very long and only make minimum payments whatever you purchase on the card will be very expensive. Usually borrowing for discretionary items like clothes, vacations or home electronics doesn't meet the "needs" criteria.

Some banks offer incentives such as rewards, cash back or airline miles on their credit cards. Many banks will charge an annual fee for higher risk accounts along with a higher interest rate. If you don't carry a balance and don't incur the high finance charges this type of credit card can be a good option since the rewards you earn will offset the annual fee expense.

Finally, secured credit cards can be a good option if you want a credit card and are willing to make an initial deposit as collateral against the assigned credit line. Once you have established a good payment history the credit card issuer will begin to extend credit so that it turns into a true credit line. Since your funds on deposit earn interest you are putting your money to work at the same time. Secured credit cards are a good way to initially build or rebuild credit since it is a low risk proposition for the bank and gets you started in the process of making timely payments which are reported to the credit bureaus.

See related: Help for bad credit

Published: June 17, 2005


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Updated: 09-28-2016


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