Credit cards are no longer just conveniences. They have become necessities of modern life. It is impossible to rent a car, buy things online, or get your utilities or cable turned on without a credit card. However, a problem arises if you have bad or no credit. Credit card companies will scrutinize your credit prior to granting a credit card. However, there are two primary ways to obtain a credit card despite bad or no credit history: prepaid cards and secured cards. (For more, check out 7 Factors For Comparing Credit Cards.)

TUTORIAL: Credit Cards

Prepaid Credit Cards
The first, and perhaps most popular, method of obtaining a credit card without credit or with bad credit is the prepaid card. Basically, a prepaid card is a Master Card or Visa that the user preloads with cash. For example, if you want a $1,000 credit line, you send $1,000 cash to the prepaid credit card company, plus whatever small fees they may charge for the convenience of using the card. You then receive a card with $1,000 credit on it.

This card can be used anywhere Master Card or Visa are accepted, just like a regular card. In fact, no one will know that it is a prepaid card except you and the company who granted it. Once you tap out your credit line, you need to resend money to the company to reload the card for the next use. The problem with the prepaid cards is that they do not report to credit reporting agencies. Therefore, they do no good in helping to build or reestablish damaged credit. This is where the next tool for getting a credit card shines.

Secured Credit Cards
The next most popular method of obtaining a credit card with poor or non-existent credit is via a secured card. Secured cards are issued by most major banks. The cardholder is required to open a bank account or Certificate of Deposit with the bank, generally for an amount between $300 and $10,000. The bank then issues a credit card with a credit line matching the deposit. Hence the term secured.

The card is secured by the deposit so if it isn't paid, the bank will cease the deposit to pay off the bill. What makes secured cards the smartest way to get a credit card with bad credit is that they generally report to the three major credit bureaus. Having your credit history reported is the first step in building your credit. After you have made consistent payments for a year or two, most companies will return your deposit, turning the card into a real unsecured credit card. This is the fastest way to ramp up your credit score and build a solid credit history.

The Bottom Line
Establishing a credit history is vital. If you have had a poor credit report in the past, there are still options for obtaining a credit card. Both prepaid cards and secured cards have their own positives and negatives.

Related Articles
  1. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  2. Credit & Loans

    Walmart MoneyCard Vs. Walmart Credit Card

    Discover how the Walmart MoneyCard and the Walmart credit card have different benefits that may influence your decision on which one to choose.
  3. Savings

    These 10 Habits Will Help You Reach Financial Freedom

    Learn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
  4. Credit & Loans

    Have Bad Credit? 6 Ways to a Personal Loan Anyway

    It'll cost you more, but borrowing is definitely doable. Here's how to proceed.
  5. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  6. Credit & Loans

    How To Minimize Holiday Debt Before It Happens

    Holiday expenses can drown you in debt. Find out how to avoid this festive spending hangover.
  7. Credit & Loans

    The Basics Of Lines Of Credit

    Lines of credit are potentially useful hybrids of credit cards and normal loans. Learn how a line of credit can help (and hurt) your finances, and how to find the best one to suit your needs. ...
  8. Credit & Loans

    These Are The Best Credit Cards For Making Balance Transfers

    Handled correctly – and very carefully – a promotional credit card balance transfer offer can save you money. Here are some of the best deals around now.
  9. Investing

    The Enormous Long-Term Cost of Holding Cash

    We take a look into how investors are still being impacted by the memory of the tech bubble and the advent of the last financial crisis.
  10. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  1. How many free credit reports can you get per year?

    Individuals with valid Social Security numbers are permitted to receive up to three credit reports every 12 months rather ... Read Full Answer >>
  2. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reducing the number of times shoppers and buyers have to pay for ... Read Full Answer >>
  3. Can you use your Walmart credit card at Sam's Club?

    Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
  4. Is it possible to get a free credit report from Equifax?

    It is possible to get a free credit report from Equifax, as well as the other two major credit bureaus, Experian and TransUnion. ... Read Full Answer >>
  5. How can you cancel your Walmart credit card?

    Walmart offers two types of credit cards: the Walmart MasterCard and the Walmart credit card. How to Close Your Walmart Credit ... Read Full Answer >>
  6. Do free credit reports affect your credit score?

    Free credit reports do not impact your credit score. Credit inquiries are divided into two categories: soft inquiries and ... Read Full Answer >>

You May Also Like

Trading Center