It seems unlikely that someone with extremely low credit scores would be able to qualify for a credit card. But in fact, there are options available to bed loan borrowers. These are specially designed for applicants with bad credit, designed to give the cardholder the opportunity to rebuild their credit standing.
The most damaging part of having a low credit score is the difficulty in rebuilding credit standing. The only effective way to do this is to take out another loan or credit card and keep up the payments without fail. But finding a lender who will take the risk is a problem.
But there are options available that provide an ideal route back to good credit. The terms of these cards are not ideal, with higher interest charged and limited credit available on the cards. We look at 3 options worth considering.
1. Secured credit cards
A secured credit card is linked to your own savings account. But instead of taking money out of your account as it’s used, like a debit card, the account only serves as collateral. As a product for bad credit borrowers, it works well as long as there is money to open a savings account.
The card works like a regular credit card, with funds provided as a percentage of the savings account balance. Usually 50% or 100% can be used, so a $1,000 savings account means there is a $500 or $1,000 credit on the card. As long as the cardholder makes regular payments, the savings account is never touched.
In terms of rebuilding credit standing, this option is excellent. Not only is there a vested interest in making payments and not seeing your savings depleted, but there is also a slim chance of worsening credit scores. Like other credit card options, they come with an annual fee and a high interest rate.
2. Prepaid debit cards
While these aren’t credit cards, they still offer an opportunity to adopt disciplined card habits. One of the problems with credit cards is that the user often sees it as free money, since it does not usually affect their bank account. That’s why, at first glance, a credit card for bad credit borrowers seems like an odd solution.
However, with prepaid debit cards, the money spent comes directly from the card’s account balance, which is decided only by the amount the cardholder chooses to deposit into the account. The card has no specific credit limit and, as purchase and deposit activity continues, contributes to efforts to rebuild credit standing.
Most banks offer some type of debit card, the most popular being the All-Access Prepaid Card and the Wired Plastic Prepaid Card, both provided by VISA. And, as one of the options for getting back to strong credit, it’s the most manageable.
3. First Premier and Orchard Bank credit cards
Some banks offer specific credit cards that are designed for borrowers with bad credit and are available at special conditions. For example, First Premier Bank issues a credit card for bad credit borrowers at a low interest rate, but is instantly approved: the gold card is available through MasterCard and VISA. Orchard Bank, meanwhile, offers a Platinum MasterCard with a low interest rate on purchases.
Because these banks regularly report to the credit bureaus, they play a key role in rebuilding credit standing. However, both credit card options have high fees. First Premier has a setup fee between $29 and $95, monthly participation fees, and an annual fee. Orchard Bank charges a high annual fee. The cost of these cards is worth it when your credit score goes up.
