Having a bad credit score means that you might not be able to get a loan. You will have less favorable terms and higher interest rates on those loans. As such, you might even have trouble getting an apartment or job. Of course, the causes of having bad credit are even more diverse and can include foreclosure, bankruptcy, and the inability to pay your bills on time. If you’re trying to rebuild your credit, secured credit cards for bad credit might be the answer you seek.

Secured Credit Cards for Bad Credit: Who Benefits?

Primarily, these credit cards are designed for people who have no credit history and need to build one. They’re also suitable for those with low credit scores who want to rebuild their credit and get higher scores. Some lenders will give people without credit histories an unsecured card, especially if their family has good ratings. However, if you can’t find one who will, a secured card can help you.

What Is a Secured Card?

Secured credit cards for bad credit require collateral to be put down before a line of credit is opened in your name from that lender. Therefore, if you want a credit line of $500, you may be required to provide the company with that full amount. The lender keeps the money and gives you a credit card for that much money. If you default and don’t pay the minimum amount due each month, the creditor can use that collateral to cover the bill. In a sense, it is an insurance policy for the lender.

How to Qualify for Secured Cards

Generally, a secured credit card has looser standards than unsecured versions. This makes it easier to attain them, but it also means that you’ve got fewer perks. You’re unlikely to find travel or cash back credit cards or high spending limits.

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There are a few options that don’t require a credit check. As long as you can pay the minimum security deposit, you’re guaranteed approval. However, they rarely move to unsecured status, have high APRs, restrictive terms, and higher annual fees.

Most secured credit cards for bad credit do still require a credit check. You aren’t likely to qualify if you have scores below 500, and some creditors may want you to have at least 561. Likewise, you won’t know if you’re approved until you apply.

Benefits

The primary benefit of secured credit cards is that you don’t need perfect credit. That’s the point of the security deposit. Therefore, if you have a strong history and good score, you probably qualify for unsecured cards, which have better terms, lower rates, and possibly come with rewards.

Likewise, most secured cards still report to the three major credit bureaus. The goal here is not to max out the card, keeping your debt ratio low. Along with such, you should make at least the minimum payment on time each month. It is ideal to pay off the credit card each month to avoid getting into significant debt.

With time, your credit score is likely to rise. However, you must make sure (before you apply for the card) that the issuer does report to all three credit bureaus. Otherwise, it will not help you build your credit. Many times, secured debit cards are thought to be credit cards, but they aren’t.

While secured credit cards for bad credit are nontraditional, they are still used the same as unsecured cards. That gives you a few conveniences and privileges. For one, you can make emergency purchases. If your paycheck isn’t quite enough to buy gasoline or groceries this week, you can put it on the card. You’ll also be able to make reservations and pay deposits. It is possible to find a variety of secured credit cards on the market, so take the time to choose the right one for you.

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