As the name suggests, a bad credit credit card is often used as a tool for repairing damaged credit or a poor credit score.
However, did you know that you can also use a bad credit credit card to establish your credit?
Yes, if you have no credit history and have yet to build credit, one way to do so is to apply for a bad credit credit card.
In this article, let’s take a look at three types of bad credit credit cards which can help you establish your personal credit history.
Secured Credit Cards
A secured credit card is the most popular type of a bad credit credit card. It is just like a regular credit card in many ways. You are given a credit line, you can use it anywhere credit cards are accepted, you can carry over a balance and submit only the minimum due payment if you like, and the features as well as the fees are similar to a regular credit card.
The difference is that the cardholder is required to submit a security cash deposit. Usually, the credit line is equal or slightly higher than the amount of security deposit. In case the cardholder defaults from payments, the issuer will use this deposit to pay the debts.
Secured credit cards report to the three major credit bureaus (Experian, Equifax, TransUnion) so they can be used for repairing bad credit and establishing credit history. Once approved, you can start using your secured card to pay your bills or make purchases but see to it that you can submit your payments on time.
Prepaid Debit Cards
In the past, prepaid debit cards do not report payments to the bureaus. Today however, there are issuers that provide credit report service so they can now be used for credit rehabilitation and for establishing credit.
A prepaid debit cardholder is not provided with a credit line. Upon opening a debit account, he/she must submit a deposit to use the card. Charges are instantly paid using the fund in the debit account. When the balance runs out, the debit cardholder must make a new deposit to use the card for new purchases.
Department Store and Gas Station Credit Cards
Department store credit cards and gas station credit cards can also be used to start building credit history. These credit cards can only be used as payment at specific locations or branches of the shop or gasoline company that issued it. Typically, the repayment period lasts for a month. That means, the cardholder can charge purchases to the credit card within 30 days and pay those charges by the end of the 30 day period. The cardholder must also pay the entire amount as carrying a balance is often not allowed.
You can find issuers of department store credit cards or gas credit cards that offer credit reporting to the three consumer credit bureaus. Use your card regularly and make sure that you can pay off your charges on time to establish and maintain good credit.