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. Credit & Loans

    Millennials Guide: Buying Your First House

    Millennial homebuyers need to research a lot of things, such as how much to pay, down payments, PMI, FHA loans and special programs for first-time buyers.
  2. Budgeting

    The 7 Best Ways to Get Out of Debt

    Obtain information on how to put together and execute a plan to get out of debt, including the various steps and methods people use to become debt-free.
  3. Credit & Loans

    Don't Get Burned by High Credit Card Rates

    The average card charges 11.8%, and some rates top 20%. Experts warn that credit card interest may remain steep.
  4. Credit & Loans

    Refinance Vs. Debt Restructuring: What's Best For Your Credit Score?

    Discover key differences between refinancing and restructuring debt in regard to terms, the negotiation process and effect on credit scores.
  5. Credit & Loans

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  6. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  7. Credit & Loans

    Can Corporate Credit Cards Affect Your Credit?

    Corporate cards have a hidden downside. If the company fails to pay its bills, you could be liable for the amount and end up with a damaged credit rating.
  8. Credit & Loans

    Millennials Guide: Picking the Best Rewards Cards

    There are perks a-plenty on offer, but you have to find the right plastic for your lifestyle.
  9. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  10. Credit & Loans

    5 Ways to Maximize Your Credit Card Points

    How to get the most bang for your rewards buck.
RELATED TERMS
  1. Credit Rating

    An assessment of the credit worthiness of a borrower in general ...
  2. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  3. Regional Asset Liquidation Agreement ...

    An agreement between an asset manager and the Federal Deposit ...
  4. The New Deal

    A series of domestic programs designed to help the United States ...
  5. Luhn Algorithm

    An algorithm used to validate a credit card number.
  6. Accelerated Resolution Program ...

    A program designed to reduce the time and cost of resolving failed ...
RELATED FAQS
  1. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  2. Do negative externalities affect financial markets?

    In economics, a negative externality happens when a decision maker does not pay all the costs for his actions. Economists ... Read Full Answer >>
  3. What is the difference between disposable and discretionary income?

    According to the Bureau of Economic Analysis, or BEA, disposable income is the amount of money an individual takes home after ... Read Full Answer >>
  4. What are the major laws (acts) regulating financial institutions that were created ...

    Presidents George W. Bush and Barack Obama, in conjunction with Congress, signed into law several major legislative responses ... Read Full Answer >>
  5. What are the similarities and differences between the savings and loan (S&L) crisis ...

    The savings and loan crisis and the subprime mortgage crisis both began with banks creating new profit centers following ... Read Full Answer >>
  6. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!