The silver lining: new options for clouded credit

By Jeremy M. Simon

Consumers with clouded credit who have avoided plastic for some time, convinced people like themselves could never get approved for a new credit card, may be in for a pleasant surprise. With some relatively new options on the credit card scene, there is a silver lining to even a bad credit cloud.

One of the more recent developments in the credit cards for  bad credit arena is the popularity of prepaid credit cards.

When applying for a prepaid credit card, consumers don't need to worry about getting turned down due to bad credit or no credit history. That is because prepaid credit cards do not require a credit check for approval.

Prepaid credit cards have gained popularity with the clouded credit clique for this very reason. But they have also gained attention among the broader consumer base in part based on a connection to entrepreneur and icon Russell Simmons, whose own Prepaid Visa RushCard bears his nickname.

Meanwhile, another relatively new option for consumers with bad credit comes in the form of secured credit cards. A secured credit card is set up so that the consumer provides what is essentially a security deposit to the card issuer. 

This security deposit protects the issuer in case of a default on the borrowed funds, and allows them to offer credit to even those people who might appear to be a risk due to their bad credit history. Over time, the issuer will typically increase the credit limit extended to the cardholder above and beyond the amount on deposit. It's also important to note that the security deposit typically earns a competitive rate of interest and is refundable upon account closure. 

The benefit of secured credit cards is that they also help the user rebuild credit. A secured credit card can be an ideal tool for a consumer with bad credit, since the issuer will report responsible card use to the credit bureaus, helping boost the cardholder's credit score.  Therefore, a consumer that uses their secured credit card with great care should be able to advance to a regular credit card as their credit improves.

A word of advice: Pay attention to the fine print as fees and interest rates vary for each card. Do the math to figure out if a card is right for your budget.

For consumers with clouded credit who would like to carry plastic again, prepaid credit cards and secured credit cards offer the opportunity to do just that.  And, once responsible credit behavior is exhibited over time, new unsecured credit card options can become available.

Published: June 11, 2007

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