Bad Credit Does Not Mean 'No Credit Card'

Most people don't give much thought to the importance of credit until they need it. When they go to apply for a credit card they discover that their bad credit keeps them from getting a card, or a card at a decent rate. Most people want to pay their bills, and remain in good credit standing. Nobody wants to be seen as a deadbeat to the credit card companies, but because of a couple of tight financial situations in the past they cannot get approval for a credit card. There is a way around this problem.

There are a few companies out there that understand your situation, and want to help you to obtain a better credit rating. These companies offer secured credit cards. A secured credit card is a card that you make a deposit to which determines your credit limit. You can use your card just like any credit card, but your purchases are limited to your deposited amount, (similar to a debit card). Before applying for a secured credit card you must make sure that the card reports to the major credit reporting agencies. If they do not report then that card is nothing better than a glorified debit card. In extremely simplified terms when a secured card sends reports to the major credit reporting agencies they are showing that you are paying off your debits, and you are less of a credit risk.

Here's a brief example of how these cards really work. On the surface it works just like a debit card. Let's say you made a $200 deposit to your secured credit card. You then go to the store and make a $20 purchase. Your account balance is almost immediately reduced by $20 to $180. The key to these cards is when the credit card company goes to report your information to the major credit reporting agencies, (the better secured card companies will report monthly). In simplified terms, the credit card company will tell the reporting agency that you made a $20 purchase on your credit card, and it was paid. As far as the reporting agency is concerned you are making good on your charges. This is a sign of a good borrower. Even if you have had problems with credit in the past the reporting agency is seeing that you are now less of a default risk thus bumping up your credit score. After time you become more appealing to other credit card companies and you will more readily be accepted for traditional credit cards.

Improving your credit is not a quick and easy task. There are many other things that factor into your credit score, but this is one action that you can take on your own. A secured credit card may not fix severely damaged credit, but for many people it's a step in the right direction. It will not make your credit score sky rocket into the upper 700's either. It will take some time, but it's better than sitting back, passively hoping that things will get better.

*Before applying for any credit card be sure to read, and understand the 'terms and conditions' of the card.