You Still Have Options!

If you recently applied for a credit card but were declined because you have bad credit or no credit history, don’t lose hope.You still have options!

There are two types of cards that you need to be aware of in this situation:secured credit cards and prepaid cards.Both have pros and cons.

Secured Credit Cards

As the name suggests this is a credit card that is secured by a cash deposit that you make and is tied to the card.Once the deposit is made you can use the card just like any other credit card- charging purchases and paying monthly bills. In addition, if you maintain a regular payment history, the card issuer will typically reward you by increasing your credit line without requiring you to add to your security deposit.

Pros: The monthly payments made on most secured credit cards are reported to thecredit bureaus. For this reason, a secured credit card can help you build a good credit history — as long as you pay the bills on time.

Cons: The main disadvantage of secured credit cards is the cost. Because these cards cater to higher-risk consumers, most issuers of secured cards charge higher fees and interest rates.

Watch out: Avoid online credit card applications that don’t enable you to see the card terms and conditions until you’ve gone through the application process. They are likely to hide sneaky terms, like charges for increasing your credit limit or high annual fees. Also watch out for secured credit cards with high interest rates.

Prepaid cards
Prepaid cards look like credit cards, but they function more like debit cards. Your credit line depends on how much money you have loaded onto the card, and each time you make a purchase you draw down those funds. In other words, with a prepaid card, you don’t have access to a line of credit. You can spend only the money you put into the card account.

Pros: Anyone can get approved for a prepaid card.

Cons: Prepaid cards have two main drawbacks: They come with a multitude of fees, and they don’t help you build a credit history!

Prepaid cards have been criticized, not only for the fees they charge, but also because the pricing and structure of most prepaid cards make it difficult to determine how much it will cost you to use them.

Watch out: Recently there has been a lot of publicity over prepaid cards, most notably with a new program launched by Suze Orman. She is partnered with TransUnion for this card and claim that there is a possibility that some day it could be used in credit scoring.Even on the card’s website Orman says, “I’m proud to say that the Approved Card is the first prepaid card in history to share information with TransUnion, a major credit bureau.” The actual truth behind all of this is if you sign up for new card and then opt into an anonymous pilot program for 18 to 24 months you can give TransUnion permission to use that data to see if they can find anything with your spending habits on this card that might be helpful for credit scoring purposes! That information isn’t as catchy as simply saying “the approved card is the first prepaid card in history to share information with TransUnion!”

Just in case you didn’t know, the industry standard for credit scores is the FICO score, so really what this means is just about every lender that you might actually want to get a loan from is evaluating you based on your FICO score.Not some score made up by TransUnion with the help of data from Suze Orman’s approved card! Take my advice on this, if your motive for getting one of these cards is to improve your FICO score, get a secured credit card, use it properly and don’t get suckered into getting a prepaid card just because Suze Orman sticks her name on it.Do what is best for you and your family, not just blindly follow others with ulterior motives.

Author: Dan Beck

Dan Beck is a credit repair expert who teaches consumers how to create an "A Rated" credit profile. Would you like to receive a FREE Consultation with Dan? If so, click here.

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