Credit Cards

Understanding “Second Chance” Credit Cards

second-chance-aveIf you have bad credit or no credit, you can still obtain a credit card. Called “second chance” cards, many financial institutions now offer credit cards for those with bad credit. Even notable institutions like American Express, Chase, and Capital One have entered this financial arena.

Second chance credit cards are available in two formats:

Secured Credit Cards
Secured credit cards require you to post a payment to your account before you can use the card. The amount of your payment is the amount of your credit limit. This is the least expensive method to start rebuilding your credit.

The benefits of this type of credit card are: Since you are depositing your own money, there is very little risk for the card issuer and the cards are easily obtained. The fees for secured cards are considerably lower than those for unsecured cards, so this is an excellent option for those who may have limited income but are otherwise financially stable.

The drawbacks to this type of credit card are that you must have the money to put down initially. If you are financially unable to tie up cash for a period of time, then this may not be a viable option for you. Additionally, since you are borrowing against your own money, some credit institutions may not deem this an accurate indication of your creditworthiness.

Unsecured Credit Cards
Unsecured credit cards for bad credit require no initial deposit but they have a low initial credit limit. Still, you need to ensure that your payments are made timely and that you remain substantially below your credit limit.

The financial institution with whom you have your second chance credit card will usually review your account on an annual basis at a minimum and you may receive credit limit increases based upon your history with them.

The fees associated with unsecured credit cards are much higher than those associated with a secured card. Usually, there is an annual fee, there may be a monthly fee, and the interest rate is considerably higher than it is for a credit card for those with good credit.

Therefore, it is financially prudent as well as very important to pay your bill in full each month in order to avoid excessive interest charges. Paying your bill in full each month also is seen as a smart financial decision and may reflect more favorably on your credit history with the card issuer.

Using Your Second Chance
Since the purpose of the second chance credit card is to provide a fresh start to those who have encountered financial difficulties, it is important to use this tool wisely. Be sure to:
·Always pay your bill on time
·Pay your statement balance in full if at all possible
·Keep your card balance well below your credit limit; a credit card that is at its maximum limit is a detriment to your credit score
·Report a lost or stolen card immediately

Some credit cards may be more effective at helping you to increase your credit score.

The rights of credit card holders have changed in the past few years, in part due to the Card Act signed into law in 2009. As a credit card holder, you have certain rights with the card issuer and it’s important to know what your rights are. In order to protect your hard earned higher credit score, be sure to monitor your credit report for unauthorized activity and report fraudulent or inaccurate information immediately to all three credit agencies, which are Equifax, TransUnion, and Experian.

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