Secured Credit Cards
The secured credit card is very similar to the pre-paid debit card as it requires that you make a deposit before you can use it. However, it is more like a traditional credit card in that you still pay interest and fees, but can also reap rewards. The deposit that you make on a secured card is basically a security deposit, like what you put down on an apartment when you rent it. It covers any liability that you might incur that would pass on to the bank.
Whether you have had previously bad experiences with credit cards or you had a string of bad luck and, perhaps, lost your job, you couldn't make your payments. Banks offer secured cards for people who are somewhat of a credit gamble. However, if you are in a place where you are ready to correct past mistakes, this might be a quality option for you.
Secured cards come in many forms, just like traditional credit cards. Some have an annual fee while others do not, or have a sign-up fee in place of the annual fee. Some offer a lower annual percentage rate and others offer higher ones. Some have remarkable rewards programs, while some are simply intended to help you build credit. If that is your goal, then you definitely want to make sure that you find a card that will report to the three major credit bureaus for you. In time, your good behavior will definitely affect your credit score.
Secured cards look and act just like regular credit cards. The security deposit that you make does not determine your credit limit, which is one thing that differentiates secured credit cards from pre-paid debit cards. There are some banks that offer interest rates as low as 0%! This rate is usually variable, which means it will adjust typically after an introductory period of six months or more. Once you make your initial deposit, you simply make payments like normal. When it is time to close your account and move on to more traditional forms of credit, though, you can get your deposit back.
Prepaid Debit Credit Cards
If you are concerned about getting turned down for a credit card because of your credit score, you might want to consider getting a prepaid debit card. You are guaranteed for approval with pre-paid debit because the money you use is your own and not the bank's. Typically, though, when you use a pre-paid debit card, you don't have to pay any of the traditional fees associated with credit cards, like the annual fee.
Some people simply like to use these cards for that reason: they don't want to deal with fees. However, if you truly need to rebuild your credit, there are cards of this type that have built in features which report to the credit bureaus for you. Basically, you can use your pre-paid debit card to pay utility bills or other credit-based liabilities. When you use this card as a tool, then, it helps you to reestablish your credibility in the credit world and helps you to improve your credit score.
Cards that are built to help you improve your credit score also have other features that are very beneficial. For instance, you might find a card that will send you email or text alerts about upcoming bills, reminding you that you need to make a payment. Of course, once you do make your payment, the card will then let the credit bureaus know that you are keeping up with your budget and schedule.
High APR Credit Cards
If your credit is only moderately damaged, you can usually still qualify for a traditional credit card, but your annual percentage rate might be remarkably higher than comparable cards for more qualified customers. This is not necessarily a bad thing, though, especially if you have a habit of over spending. Perhaps the high interest rate will help you to refrain from impulse purchases.
Typically, if you need to rebuild your credit and you receive an offer like this, you want to use it to pay for things that are already in your budget. Therefore, pay your utility bills and cell phone bill with your high-interest credit card, and then pay the balance off every month. It won't hurt you too much in the long wrong, but more importantly, the balance won't get beyond your budget.