If your like most Americans the recession and our economy, has left you with a less than perfect credit score. Did you know with responsible credit card use, you can build credit? There are a number of credit cards to rebuild credit. Regardless, of how bad your credit may be.
Credit Cards For Rebuilding Credit
There are four types of bad credit credit cards that you could qualify for. An unsecured, secured, prepaid, and a catalog credit card. Below we review these 4 types of credit cards and the different features, fees, and benefits.
1. Unsecured Credit Card
This is a traditional credit card. You are given a credit line based on your promise and signature to repay. You will be responsible for an APR% or interest rate. There will also be some fees. The new federal lending laws regulate fees and interest rates on unsecured credit cards for people with bad credit.
And the banks have stopped offering unsecured credit cards for bad credit. Prior to government involvement this was one of the easiest ways to build credit. When an unsecured credit card account is reported to the credit bureaus. It is given a lot of weight.
This is because you are given a credit line only on your promise to repay. There is no security for the lender. And thus, the credit bureaus will view this account as a very good indicator of your credit worthiness.
2. Secured Credit Cards
It is a good thing we live in a capitalist economy and as disliked as attorneys are. They can sometimes serve some good. They have been hard at work to find ways around the new federal lending laws. One way, they have found is through a partially secured credit card.
The idea, is that you must first make a security deposit of about $100. Then, you will be issued a major Visa or MasterCard. This upfront security deposit, we believe is the technicality to make this credit card compliant with the new laws. A partially secured credit card is very similar to an unsecured credit card in the past.
The difference is that you will now pay more fees! In return, you get an account that will not count as much when it is reported to the credit bureaus. This is because it is partially secured by your upfront deposit. We have been shocked to see the fees required with these new partially secured credit cards.
One popular offer requires you to pay a $95 processing fee to open your account. You are then charged a $75 annual fee. This will be assessed on your first statement. And a monthly servicing fee of $6.25 or an additional $75 annually. You also have to pay a 36% APR.
You will be issued a major credit card with a credit limit of $300. However, on your first monthly bill you will only have a fraction of that credit limit available. This is because of the aforementioned fees! It will report monthly to all 3 major credit bureaus. But, the costs associated with this credit card are absolutely outrageous!
Instead, fully secured credit cards are a superior choice. The best secured credit card to rebuild credit will report your account monthly to all 3 credit bureaus. With responsible use you could build good credit. It will be issued as a major Visa or MasterCard. Instead of partially securing your account. You are fully securing your account by first making an upfront deposit.
Your deposit will be FDIC insured and earn interest. You then will be issued a credit card with a credit limit equal to the amount of your deposit. You can typically deposit as little as $300 or as much as $5,000. For example:
If you make a deposit of $1,000. This $1,000 deposit will be held by the bank or credit issuer. It is FDIC insured and fully refundable. In exchange, you will be issued a major Visa or MasterCard with a credit limit of $1,000. Instead, of paying outrageous interest rates or fees. You are typically paying a lower APR% and an annual fee of about $50. That’s it!
3. Prepaid Debit Cards
At one point in time prepaid credit cards gave you the ability to use credit. But, the government cracked down on these credit cards too. Today, you can not use a prepaid debit card to build credit. It will not report your account information to any of the major credit bureaus.
4. Catalog Credit Cards
The last option is a catalog card, shopping card, or merchandise credit card. These credit cards are marketed as unsecured bad credit credit cards. They claim to charge little or 0% APR. The catch with these credit cards is they can only be used at 1 location.
It is just like a department store credit card. Your credit card will not be accepted at your local grocery store or gas station. Catalog credit cards are not issued as a major Visa or MasterCard or even a credit card. There are endless consumer complaints about these cards.
For example, one popular credit card automatically enrolls you in a $30 a month recurring fee program. Every month, you pay $30 for what we can determine is merely a newsletter from the credit card company!
They will often claim credit bureau reporting. But it is almost always just 1 of the 3 credit bureaus. This means your credit card account won’t even show up on your other 2 credit reports!
Is Your Goal To Get Good Credit?
Then you can not only focus on building credit. You must also remove bad credit from your credit report. You don’t have to just live with bad credit for 7 long years! There are strict federal laws that regulate what can and can not be on your credit report.
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