Mr Credit Card
There are 4 types of "credit cards" that people look for when they have bad credit. They are
- Prepaid Credit Cards
- Unsecured Sub-Prime Credit Cards
- store credit cards
- Secured Credit Cards
I'm going to go through each of their pros and cons and tell you which type of card to get.
Prepaid Credit Cards - Prepaid Credit Cards are not really credit cards in the traditional sense because you are not extended credit at all by the card issuer. Instead, it functions much like a debit card where you have to "load your card" either through payroll direct deposit or some other means. And you can only spend what is "loaded" in the card. Because, there is no risk of you ever getting into trouble, almost everyone will get approved for a prepaid card because there is no credit risk.
However, because you are not extended credit, prepaid credit cards do not report to credit bureaus and hence, you cannot build a credit history with them. However, they may be useful for those who cannot seem to control their spending if they carry a regular credit card.
Unsecured sub-prime credit cards - There are many unsecured credit cards that are targeted at people with bad credit. However, these cards come with very high fees. You typically have to pay a one-time application fee and even a one-time processing fee. These fees alone could come up to over one hundred dollars. Furthermore, you have to pay an annual fee and a monthly maintenance fee on top of that. That means that you'll most likely be paying over one hundred dollars annually just on fees.
Typically, you are given an initial credit line of about $300 (which is really just over a hundred dollars because of all the application fees you have to pay at first). Then over time, you might get periodic credit limit increases of about $50.
The problem with these sub-prime cards is that even though it is unsecured and they report to credit agencies, the fees are high and the credit limits are really low. The credit utilization ration (debt vs available credit) is very important component of your credit score. Using for example two hundred dollars when you only have a three hundred dollar line does not really look good.
Store Credit Cards - Many folks also try to get a store credit card when to start building a credit history. While you could certainly do this, there are a couple of things that you should be aware of. Firstly, with store credit cards, you can only use them at that particular store. Secondly, the interest rate tends to be really high (as in high teens). Lastly, most store credit cards will only extend you credit for at most up to a thousand dollars. Once again, that does not help your credit utilization ratio at all.
Secured Credit Cards - Secured credit card is the best type of credit cards for people with bad credit or no credit. Before we get into the reasons, let's briefly look at what is a secured credit card. A secured credit card gives you a credit line based on a deposit that you put with the credit card issuer (hence the term secured). You will be given a credit limit that is (most of the time) the amount of your deposit. Like unsecured sub-prime cards, secured credit cards do not have their nasty fees. Instead, they usually just charge an annual fee of about $50 on average. Most secured credit cards report to credit bureaus and some report them as unsecured credit as well. The main advantage secured credit cards have over unsecured ones is that aside from much lower fees, you can have a better credit utilization ratio simply by depositing more money for your card. Most secured cards allow you to deposit up to $5,000. In fact, I would suggest opening 2 secured credit cards if you have the means to do so. Utilizing a few hundred dollars in credit versus having a $5,000 credit line or more looks better on your credit report too.
Summary - To sum up, I would say that secured credit cards are probably the best type of cards to get if you have bad or poor credit. They are much more cost effective and better at rebuilding your credit than unsecured sub-prime cards or prepaid cards.
The Capital One Secured MasterCard is one of the more popular cards for folks who have had their credit damaged and looking for a starter card to rebuild their credit..
The First Progress is one of the more "sub prime friendly" cards. While many other secured cards from main stream banks may deny you of a secured card, this card is more likely to approve you.
When you have been repeatedly denied a sub prime whether it is a secured or unsecured card, then you might want to check out Primor because it does not do any credit checks. They will approve you if your income exceeds your secured deposit by $100. Their rates are relatively low as well.
Capital One, Bank of America, US Bank and Wells Fargo may have secured cards. But even they deny folks. If you have been denied, the OpenSky Secured Credit Card does not do any credit checks and barring any mistakes (like SSN or address in your application), you should be approved for it. Fees and rates are reasonable and they reported to all three major bureaus as unsecured.
If you look further down this page, you will see a long list of unsecured sub prime cards. However, most of them charge application or processing fees, and even monthly fees on top of an annual fee. You will be glad to know that Credit One charges only an annual fee and has a reasonable interest rate relatively to it's peers. Furthermore, this is the only sub prime card we know that has a reward program (1% on gas and groceries) and allows you to check your credit score.
The Milestone Gold MasterCard® is another card that has more reasonable fees and rates. Like the Credit One card above, you would have to go through a pre-approval process (which results in a soft pull - feedback is that TransUnion is used). Once you are pre-approved, you will be given the terms of cards that you can apply for and take it from there. Another benefit of this card is that it is bankruptcy friendly.
The Surge Mastercard® is one of the latest offerings in the sub prime space. It is actually issued by Continental Finance and comes with a colorful card design. The fees and rates are colorful as well! They do charge a one-time application fee and monthly maintenance fees, which is very typical of credit cards that target low rating folks.
The Verve MasterCard is another card from Continental Finance. Like the Surge Mastercard®, it comes with the usual high fees and rates. And if you get declined, you will actually be offered a secured card instead. However, we cannot find the terms and conditions of the secured card and can only assume that you will still pay the fees associated with the unsecured card.
The Cerulean card is also like the Verve in that it is a hybrid unsecured and secured card. The fees are similar to the Verve and Surge Mastercard®. The downside is that if you get approved for the secured instead of the unsecured version, you still get stuck paying similar fees.
The Total Visa has an interesting fee structure. When you apply, you have to pay a $89 application fee and the annual fee for the first year works out to $126. This means that during the first year, you are out of pocket by $164. During the second year, the annual fee is lowered to $45. But they add a monthly maintenance fee of $625. So all in, you are out of pocket by $120 during the second year onwards. And that is enough to fund a secured card (which will return you the funds when you cancel it).
This issuer and card have been around a long time. In fact, if you look around long enough, you will find that there are a few versions of First Premier's cards. Each comes with a different design. But they all have the same fees. And they are high. This card probably has the dubious honor of having the highest apr (36% - at one time, the highest they went was $79%)
The Centennial card has perhaps one of the most complicated fee structure. During the first year, you need to put a deposit of $150 (though they claim it is refundable) to get a $300 credit line. Annual fee for the first year is $75. From the second year onwards, the annual fee is reduced to $45, but they add a monthly maintenance fee of $6.25.