If you are unfortunate enough to have allowed your credit rating to dive, either because of some unforetold event that caused great financial ruin or because you were somehow unwise and abused your finances in some way, you are in bad shape financially. Not only do you have bad credit but your credit cards are probably maxed out or very close to it and you find you are unable to pay more than the minimum required payment on them. You may have several bad credit cards and by paying the minimum payment on them, you'll never ever get out of debt.
If you have a good job that pays you regularly, consider yourself very lucky.
So, what, exactly, is a credit card for people with poor credit ratings? How does it work and why does it exist?
Poor credit credit cards are credit cards that are created for people with bad credit ratings. These cards provide opportunity to the people to use credit cards as well as to improve their credit rating (that's YOU). Bad credit credit cards also act as a training ground for the people to build new spending habits (that's you too!).
Bad credit cards are also called secured credit cards. They're called secured because credit card issuers require consumers to open up an account and maintain some cash balance in the account. This requirement is made to protect the issuers from non-payments of defaulted credit card holders.
The credit card issuer will pay interest on the balance in a consumer's account. And the credit limit on the bad credit credit card is determined by the 50-100% of cash balance in the account. So, card holders actually draw their own money and it's not a surprise that these cards are also referred to as debit cards.
If you're looking for a suitable bad credit card, you'll find plenty of credit card offers in the market. To find a suitable credit card you can analyze some offers using the following selection criteria:
the minimum balance in the bank account,
the application fees and/or other charges,
the credit limit or the allowable spending limit of your bank account balance, and
the rate of interest of the balance in your bank account.
A good credit card offer would require a very small amount of minimum bank balance and would have no fee or charges associated with it. It would also offer a good interest rate and have a credit limit within 90-100% of the bank balance.
Bad credit credit cards are usually easier to obtain because banks or credit card issuers are secured by the capital that you will be charging against. Even though the application process of a bad credit card is simple, it is usually costlier than an unsecured credit card.
So, before applying for the card, find out the total fees and whether it would be refunded or not if the bad credit card application is denied.
Now, once you have decided which secured credit card is best for you, here's what you do.
You scrimp and save until you have at least $250. You then open a new bank account. Preferably at a bank that you have not dealt with before now. You then put your $250 into this bank and then forget that it's in there! That's right. Just forget about this $250. It's gone. You no longer have access to it. Don't even think of it. After you've forgotten about it for about a month, you go in and tell the customer service representative that you want to apply for a "secured credit card."
You then fill out the application, turn it in and leave the money alone and go home and back to your normal routine.
Your secured credit card will arrive in the mail in about 4 to 6 weeks. All this while, you've been working diligently at your job and paying what you can on your bills, right? I hope so. Keep in mind that the money that you'll be using with this credit card is YOUR money. You don't really have any credit rewards at all and you are only allowed to spend about � of the $250 that's in the secured account. So, once a week, you go out and buy yourself (NO ONE ELSE) lunch for no more than $15 and charge it onto your new secured credit card. You've gotta eat lunch, right and why not treat yourself to lunch at least once a week (and ONLY once a week)? At the end of the month, that should add up to about $60 to $75, depending on the card's billing cycle.
This space is too small to put all the info in. Check out the reference below for more information on the subject.