In our fast-paced society, it has become almost impossible to function without a credit card. However in these tough economic times, many of us find ourselves with a credit history which makes it very difficult to obtain a credit card. We search the internet for credit card offers for people with bad credit or poor credit and find a multitude of offers. They have various names like prepaid credit card and secured credit card, and sometimes the names seem to be used interchangeably. So what do we do?
First, identify what it is that you're looking for :
- Convenience of a credit card for online purchases, travel arrangements, etc.
- Security of not having to carry cash
- Something that will help rebuild your credit history
Next, compare what is available:
- Prepaid Cards
- Are usually just debit cards
- You deposit money in an account and withdraw it via the card to make purchases
- Accepted worldwide much like a traditional card
- Usually no credit check – this can mean immediate approval
- No Interest fee since you are using your own money, but may have other fees such as activation fees, annual fees, re-loading fees, etc
- No chance of increasing your debt since you can only spend what you have deposited
- Do not generally report to credit agencies so will not help in rebuilding credit history
- Some have optional programs which do report to credit agencies
- Secured Cards
- Look and function like a standard card
- You deposit money in an account as a security – the amount establishes your credit limit – and is not touched unless you default on your payments
- Usually carry high interest rates on outstanding balances (use it and pay it off monthly!)
- May carry additional fees such as activation fees, annual fees, etc.
- Most report to credit agencies so will help rebuild your credit standing
- Are often convertible to a standard credit card after a year or so
- Some pay interest on your deposit
Considering the above, if you are looking for a credit card, compare the different offers available no matter what they call themselves, and determine what best meets your needs. Prepaid card, secured card, or something in between? If you're just looking for the convenience of plastic, then a simple prepaid credit / debit card may fit the bill. If you're looking for the additional advantage of rebuilding your credit history, and eventually converting to a standard credit card, then you may want to consider the features of a secured card. If you're looking for the convenience of plastic, and rebuilding your credit history, without the high costs of a typical secured credit card, then you may want to consider a prepaid card that has optional features which include credit reporting.
Don't choose a card just by what it is called – know exactly what it offers and what it costs:
- Decide what you need
- Research the available offers; read reviews
- Find out how the card is funded
- How is the credit limit established
- Is the limit set by the initial deposit or can it be increased
- What fees are attached to the card (eg. Activation fees, annual fees, re-loading fees, interest fees, etc.
- Is your deposit used to pay for your purchases, or is it just held as collateral against non-payment
- Is your activity reported to the credit agencies
- What optional features does the card have
In summary, if you want to ensure that the card you choose will meet your needs, do a little research – check credit card reviews, and most importantly read all the fine print. Know exactly what you're getting and know exactly what you will be paying for it.