Easy to Obtain

A credit card for those who have not had a chance to establish credit (like students, for instance) can be either unsecured or secured (prepaid). The unsecured option when it comes to this type of card usually features an inflated rate of interest (annual percentage rate) and may have fees associated with it just to open the account. The limit on unsecured card for those with no credit history will be very sparse – usually less than $1,000. The secured card for folks with this type of situation is also known as a prepaid credit card. In order to qualify for this, you will need to place a deposit with the card issuer in the amount that you wish your credit line to be established. For example, if you want your credit line to be $1,000, you will need to deposit that amount into your account.

Using the Prepaid Credit Card to Build Your Credit History

From the moment that you get your prepaid credit card, you have an opportunity to begin building your financial future. The steps that you take right now can determine much about your ability to borrow money, rent an apartment or qualify for your dream job, or even take out a mortgage, eventually. Use your card wisely and you will add valuable points to your nonexistent credit score that will help you meet your financial goals. Some tips:

• Pay your balance due each month, or at least the minimum monthly payment. (Keep in mind that paying only the minimum amount due each month will cause you to pay more for your purchases because of the tacked-on interest charges).
• Avoid urges to overspend. Stay within the limit that has been set for your account, and avoid going over at all costs.
• Consider using your pre-paid card for regular expenses that you have that you would typically use cash for – like gasoline or food – and then pay off the balance each month in full. This makes it easy to stay within your boundaries when it comes to not overspending while giving you a convenient way to make purchases and track your expenses.

Unsecured Bad Credit Cards
An unsecured card for bad credit is the most obvious choice for most folks who are looking to rebuild financially. Unsecured means it is issued based on creditworthiness. For this reason, there are very few companies that are willing to issue these types of accounts for those consumers who have truly bad credit. Those that do will usually charge a fee, typically called a “program” fee that is actually just a way to charge for absorbing the risk of doing business with you. These fees can be upwards of a hundred dollars – but these offers shouldn’t be overlooked as they can be wonderful opportunities to obtain a card that can help rebuild your credit.

Secured Bad Credit Cards
On the flip side is secured credit cards. Secured can also be interpreted as prepaid because you must pay a deposit that is equal to the amount of credit that you want extended to you. For example, if you want to have a $500 credit line, you will deposit $500. Your card will work like usual and you will make regular monthly payments just like you would with an unsecured account.

Managing Your Finances to Combat Bad Credit
Once you have opened your secured or unsecured accounts, the work of rebuilding your credit begins. You should plan on:

• Making your monthly payments on time, each and every month. Even one late payment can cause your credit score to decline even more. Always mail your payment at least ten days before the due date to allow time for it to travel through the mail and to be processed.
• Not exceeding the credit limit that has been established. Going over-the-limit is not only a quick way to make your credit score even worse, it is also very expensive. Most companies charge exorbitant fees if you exceed the amount of credit that is available. In addition, charging more than fifty percent of your available funds during one month can have a negative impact on your credit to debt ratio that is used to determine your score.
• Running a balance. Don’t pay your card off in full each month. Running a balance of one-third of your available limit shows that you are capable of managing your credit and your finances.

The credit card companies check for basic things when they are trying to decide if they will approve you or not. You must have some form of income, not necessarily a job, but some continuous source of cash flow. Most companies will also check your credit rating, but that really does not stop you from being approved if you’re willing to pay higher interest rates or an annual fee. It seems that all you have to be is 18 years of age and ready to take on the responsibility of interest and limits. The problem is that many people see free money when they get a credit card, and they do not think of the consequences that follow. Credit cards can lead to additional money loss within your monthly income.

You can ruin your credit rating by spending more than you can afford to pay back and trying to live beyond your means. When you see young people wearing designer clothing and carrying designer bags you may think to yourself, “Wow that young person must be accomplished and doing quite well for themselves.” That is rarely the case, however; that young person probably has tons of credit cards with tons of interest and money loss to come. It is easy enough: all you have to do is apply for the credit card and usually you can be approved within 24 hours. Then there you have it – a limit ranging between $500 and $30,000. Now all that is left to do is spend the new limit that you have taken on. Many people do not think about the fact that at the end of the month they will receive a bill. You must pay the balance due and make a certain amount monthly; which then has to be split up to pay your monthly bills and the credit card balance.

Before you know it you have over-spent, and now the collectors are calling you and knocking at your door. It is so easy to ruin your credit by overspending. Even as the bills pile in you may think to yourself, “I have time; I will pay the bill later. There is a big sale, I need to go shopping, and I have my credit cards, so I will use them and then I do not have to pay the bill right away.” This way of thinking is the problem that much of the world is having. It leads to bad decisions, bad credit and long-term debt; which could take a lifetime to free yourself from. Once you have created bad credit for yourself, it will take a lot of money to pay the balance and the interest fees (as well as the collection agencies, which have their own fees which they assess to your bill).

In the end is it really worth it? So what if you miss the sale of the year because you do not have money to shop, or if you cannot buy a new car right away. We need to get back to the old school of thought: buying only what you can afford and earning everything you have. It is so much better to work for something because you will appreciate it more. Credit cards do not provide financial freedom as people might think; they are a black hole of debt that can cause bad credit and major depression. Just think twice before taking on a credit card, and if you feel that you are ready for one, then be responsible and remain debt free.