When you’ve got a poor credit history, it’s considerably harder to get approval for the best credit cards. This is because lenders and issuers report any missed or late payments to Experian, Equifax and TransUnion. Any bad credit entries will be visible to a company that performs a credit check for the next 7 years in America. Worse still, if you’ve filed for chapter 7 bankruptcy, the information is recorded for a minimum of 10 years.
If issuers have been declining your applications, you now know why this is the case. The good news is that there are pre-paid, unsecured and secured second chance credit cards with no credit checks that are specifically designed to meet the requirements of the bad credit customer. The terms won’t be as favorable as they once were, but many applicants use them as a stop-gap until their credit improves.
Types of Second Chance Credit Cards for People with Bad Credit
Unsecured: These credit cards for poor credit typically have a low credit limit, about $250, because the issuer doesn’t want to be left with bad debt if you default on the arrangement. They do report to credit reference agencies and your credit limit will be reviewed after about 6 months. If you manage your account properly, the terms of the agreement will improve or you’ll be able to apply for a better deal elsewhere.
Secured: Bad credit credit cards are backed-up by an item of value or a $200 minimum cash deposit. The money you leave with the issuer means that you’ll be entitled to a much higher credit limit. The lower risk is also reflected in the charges you’ll be asked to pay. If you can afford to deposit a small sum of cash with the issuer, the secured credit card represents a better alternative than an unsecured card.
Pre-paid: Bad credit rating credit cards that are pre-paid don’t involve a credit check or the provision of a credit limit. Instead, customers load their own money onto the card by bank transfer. Once the funds arrive, you can spend the proceeds in the same way you normally would. Unless a pre-paid card displays the credit builder symbol, it won’t help to rebuild your credit rating, but it will help to prevent debt problems.
Differences Between Good Credit & Bad Credit History Credit Cards
Despite what you might expect, there are no practical differences in the way each type of card works. A merchant won’t know that you’ve used a bad credit rating credit card to fund your purchase, unless he’s familiar with the names of the leading issuers. In any event, he won’t care less as long as he gets his money. Just choose your item, go to the checkout, scan your card and enter your PIN number. Nothing has changed.
The main difference is behind the scenes. Unless you’ve provided the issuer with collateral or security, you’re likely to find that you have to tolerate having a low credit limit. In the case of pre-paid cards, you’ll be expected to load your own funds onto the card before you start to use it. You’ll also tend to find that you’ll face a higher APR, annual fees and other miscellaneous charges. Always check the terms and conditions before signing up.