Navigating today’s society without a credit card in your wallet can be treacherous. Need some gas after hours when the cash window is closed? Forget it. Want to make an airline or motel reservation? No can do. How about renting a car? Uh-uh. And you better forget about shopping online, because there is no paper money slot on your PC.
Many people who would like to use credit have difficulties qualifying. The primary reason is that they have damaged their credit score by defaulting on a credit agreement in the past, and therefore banks and other financial institutions consider them a bad risk, thus denying their application.
For those who would like to repair their bad credit with a new card, there are options available.
Secured Credit Cards
A secured credit account, like a secured loan, is backed up by collateral–something of value which you agree to surrender in case you do not make your payments. In the case of a secured card, your collateral must be cash.
Some banks will hold your cash in a “security” account for up to a year. Meanwhile, you will use your VISA, MasterCard, or other service to pay bills and make purchases, paying at least the minimum payment each month on your card balance. You will pay additional fees for your secured card, including:
- Interest on unpaid balance each month ranging from 9.9% to 19.9%
- Account set-up fee ranging from $20 to $99
- Annual fee ranging from $19 to $99
- Program fee of up to $100
- Late payment fee of approximately $30 each time
- Cash advance fee of $5-$10 each time you get cash from your card
- Over credit limit fee if you exceed your preset limit
- Other miscellaneous fees
Meanwhile, if your bank is holding your initially paid cash in a “security” account, they may not be paying interest to you as they normally would for a conventional savings account. When the year is up, they may offer you an unsecured card, if you have made your payments faithfully, and return your security deposit.
Other banks or firms which issue credit cards might use your cash collateral to pay your monthly bill for you by direct withdrawal from your security account, and allow you to load more cash into that account to maintain or raise your credit limit.
Any secured CC has a credit limit range, and within this range–$200 to $5000, for example–your credit limit matches the cash amount you put up as collateral. So if you deposit $500 as security, your credit limit will be $500. Note, however, that your bank may withdraw its fees from this amount, effectively lowering your credit limit.
To obtain a secured CC, you must meet the minimum requirements of your issuing institution, including:
- Be 18 years of age or older
- Be employed
- Be a U.S. Citizen
- Provide proof of citizenship such as a Social Security number
- Have a physical address
- Provide your birth date
Banks are required by the Patriot Act to collect personal information such as your birth date and social security number for identification purposes. Because some institutions use this information to inquire into your credit history, make sure that the card you’re seeking is a “no credit check” card.
If you do not like the idea of having a chunk of cash tied up in a bank account as security, you do have additional credit options.
Prepaid Debit Card
While not technically a credit card, a prepaid debit card is quite similar to a secured card in that you load it with cash to determine your own limit on purchases–when you run out of cash, the card becomes inactive.
One drawback in using a prepaid debit card is that it will have no effect, either positive or negative, on your credit report. A secured CC, in contrast, can help repair your past credit mistakes if you keep your payments up to date; banks and companies which issue secured cards do report your performance to the credit agencies, while a prepaid debit card does not show up on their radar.
The many positive factors involved in start a payment processing company using a prepaid debit card include:
- You can’t overextend your finances
- The fees are lower than a card’s fees
- Your cash is not tied up; you can spend what you load onto the card
- It is easy to obtain with no credit check
- It doubles as a credit card in most situations
If you place importance on working towards a better credit score but do not wish to make a large outlay of cash to secure a credit account, there are unsecured, no credit check credit cards available.
Unsecured No Credit Check Credit Cards
You may be thinking that getting an unsecured credit account with a dubious credit history is as easy as opening up one of the countless pre-approved card offers you receive in the mail each day. If you have read the fine print on one of these offers, you know that pre-approval is contingent upon an acceptable credit investigation. In other words, these offers are usually only useful to individuals with good credit scores who already have credit cards.
With a bad or nonexistent credit history, you will have to look harder for an acceptable credit card offer. There are some card programs designed especially for people like you, but they come with a high price tag. Once you have defaulted on a loan or other credit program, you become a bad risk to a credit company. In order to offset the risk, the company will charge high fees for giving you a second chance at managing your credit.