Getting Credit and Credit Cards When You Have Bad Credit

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Getting Credit and Credit Cards When You Have Bad Credit

If your credit is bad, there are special forms of credit tailored just for you. As long as you follow the terms laid out in the credit agreement, you can begin to build up your credit history and be viewed more favorably by potential lenders. However, these forms of credit can carry some harsh terms.

Secured cards

A secured card is one that is backed by collateral that can be taken if you should default on your monthly payments. The collateral in this case is a deposit of money, usually at least $200. Secured cards usually charge an annual fee and may have an interest rate that is relatively high. However, they are an effective way to build credit. After about two years of using a secured card in good standing, you can try applying for a card with better terms.

Both large and small financial institutions offer them. Some secured cards have a conversion option that lets you convert them to regular credit cards after several months.

Subprime credit cards

A subprime credit card is one that is marketed to those who have bad credit or a limited credit history. Subprime cards may be secured or unsecured.

Unsecured cards are the traditional type of credit card; they do not require you to plunk down cash as collateral. But if your credit is bad, you will qualify only for subprime cards, and they will charge you a variety of fees that will eat into your available credit line. These may include a program fee, a setup fee, an annual fee, and possibly a monthly fee. The interest rate will typically be high, and the credit limit will be fairly low.

Both large and small financial institutions offer subprime cards.

Co-signed credit cards

If you have bad credit, you can usually get a credit card if someone with good credit cosigns the application. This person agrees to pay the credit card debt if you should default on it. A person thinking about becoming a co-signer might do well to think long and hard about it, because if you default, the default will show up on the cosigner’s credit history. If you max out the card and the cosigner has difficulty paying it off, that can affect his or her credit score for the worse.

Gas cards, store cards

Credit cards offered by gas companies and retail stores are a little easier to get than regular cards. Their credit limits and interest rates aren’t as favorable, but you can use them to charge small amounts and pay them off regularly, thus building credit.

Companies where you’ve done business

If a utility, phone, or other company you’ve had services from offers a card, and you have a good payment history, it may be inclined to offer you a card.

Getting loans

If your credit is bad and you want an auto loan, a personal loan, or a mortgage, you may need to get a cosigner or put up some attractive collateral. Otherwise, you will likely have to wait until your credit improves.

If a personal loan is what you are after, your bank or credit union may give you one if you already have an account or two with them (having a deposit account is a sign of stability that lenders look for; also, many cards require that you have a checking account anyway). They will already have a sense of your financial status. At the least, you may get a small loan or a loan that is secured by one of your accounts.