It always makes me chuckle when I see how many searches are done online every month for the phrase – "bad credit credit cards". It seems like sort of a goofy thing to be looking for, but you would be amazed at how many people have resigned themselves to seeking credit that is almost by definition, less than desirable .. 🙂
Let's take a closer look at what they are, and what purpose they serve.
First of all, as you probably have realized by now, not all credit cards are created equal. If you have a low credit score, your options are pretty limited. But, for people with less than stellar credit, there exists a whole sector of the financial marketplace that is called – sub prime, which is simply a euphemism for "high risk!". Why would a credit card issuer take a risk on you if you've already proven yourself to be a bad one? Well, for starters, they'll only offer you what is referred to as a secured card – or a credit card that is actually guaranteed by a deposit you make (usually for the sum of the credit card) with their bank. This brings their risk to roughly, zero! Benefit to them – you are going to put hard money in their coffers by way of your deposit (don't forget, a bank is evaluated in part by how money is on account with them), you are going to pay a HIGH interest rate on your purchases, you are most likely going to stay with them for a while due to your limited options, and – in the event you default, they've got your cash. Guess what, that isn't what we call a high risk "loan" now, is it?
But wait, let's talk about the benefits to you, because they are pretty good as well. You have a credit card, or two, which will help you rebuild your credit far faster than having nothing. You can rent cars, hotel rooms and all other amenities that a regular card will provide. And, for the most part, no one will know the credit card is secured. (Unless you tell a friend and he makes a point of sharing that fact every time you break it out at a bar or restaurant which happened to me quite often unfortunately .. 🙂
One quick distinction: Make sure the card IS NOT reported as secured to the credit bureaus. Most will not, they will report it as a normal account, but there are a few who do. Check ahead of time, as this is EXTREMELY important when rebuilding your file with the bureaus. A secured card is graded differently, as it is theoretically not really credit, but rather a "debit" card in the eyes of the bureaus if it is reported as secured. You must ascertain for sure, by asking the credit issuer, as well as reading their literature or application, to make sure it's reported to the three major bureaus as a normal account.
Make your payments on time for a while, they'll give you an increase every 6-9 months, and in a year or two, you WILL see your credit score bump up considerably, which is the whole point of keeping credit, even when in a financial crisis.