Even with No Credit or Bad Credit
Credit and credit cards are a fact of life today. You have to have credit to get credit and everybody requires some kind of credit card. From the phone company to gas stations, you can't function without plastic. But, what if your credit is bad, or if you don't have any credit; how will you overcome this?
Debit Cards
Most banks issue a Visa or MasterCard logo debit card with their checking accounts. These pretend to be credit cards in some instances. Unfortunately, since they are paid directly from your bank account, they do nothing for your credit score. Also, there are some draw backs to using a debit card, the major one being; you cannot “pay at the pump”. Further if you rent a car or a moving van, the company will withdraw a sizeable deposit from your bank account and hold it for 3 to 5 business days. This could overdraw your bank account and cause checks to bounce.
Credit Cards
To prevent this, you need a credit card.
If you have no credit or if the credit you do have is bad, most credit card issuers either won't give you a card, or will charge you an outrageous interest rate. On top of that, they will give you a very low beginning limit.
Secured Credit Cards
There is hope. You can get a prepaid credit card. These differ from the prepaid debit cards that you see around, in that they are real credit cards. That means, they report your payment history to the credit bureaus. Debit cards do not.
A prepaid credit card looks and feels like a real credit card, the only difference is that it is secured by a bank account. These are sometimes called secured credit cards. They work the same as an unsecured card, and only you and the bank know the truth. The good thing about this kind of credit card is that the credit limit is based on what you have in your bank account. It may be a percentage, or the whole amount, you would have to check with the credit card issuer for the particulars. Generally, you will not be allowed to withdraw any of the money on deposit with the company, since it is there to guarantee payment of your credit card bill in the event you default.
Pros and Cons
The interest rate on these cards may be high to begin with, but it may decrease based on your payment performance. The good news is that your credit limit is what you make it. You may also be able to increase your credit limit by making additional deposits or the issuer may give you an increase if you make your payments on time.
This type of card is great for someone just starting out, but it is fabulous for the person trying to re-establish credit. The payments you make are reported to the credit bureaus. If you make your payments on time, consistently, the issuer may convert your card to an unsecured account. But you would have to check with them for the timing on this. All of the rules will be spelled out to you when you open your account.
Secured Credit Card Issuers
There are several companies that issue secured credit cards. Below is a list of some of the more well known ones.
If you are a credit union member, you may want to check with them to see if they offer a secured credit card; some do.
A secured credit card is the best way to obtain credit. It is perfect for those with little or no credit and even better for people with bad credit. It will put your credit on the road to recovery.
