Second Chance Credit Cards

On this site, our focus has been to give people information about how to recover from financial mistakes they have made in the past. While so far we have put our focus on second chance checking accounts, we also realize that there are other areas where people need a second chance. This is why today we’re covering the topic of second chance credit cards.

As its name suggests, a second chance credit card is designed for people who have a credit score that’s not exactly stellar. As we all know, there are a lot of ways someone can see their credit score become really low. Once you fall into the category of people who have “bad credit”, then there are a lot of things that suddenly become harder for you, or even downright impossible.

Bad Credit Credit Cards

Bad credit is often described as a vicious cycle. When your credit is bad, then the first thing that happens is that all your interest rates on existing credit cards become higher, making it harder for you to pay them down. One of the best ways for you to re-establish your creditworthiness would be to get new credit and make your payments in a timely manner, but with bad credit, no one is going to give you a chance. This is where second chance credit cards come in.

A lot of people argue that “second chance credit cards” is just a fancy name for “bad credit credit cards”. Well one of the biggest reasons behind the name change is that the concept has changed. It’s no longer “we’re giving you a credit card in spite of your bad credit”; it’s “we’re giving you a second chance so that you can practice good spending habits and improve your credit in the future”.

There are several different types of second chance credit cards. But there’s a specific type of card that’s sometimes marketed as such when it really isn’t: I’m talking about prepaid debit cards. Now we’re not saying they don’t serve a purpose, what we’re saying is that they’re not credit cards and should not be marketed as such.

Secured Credit Cards

If your credit is really bad and you need a credit card to repair it, it’s most likely that they will suggest you get a secured credit card. Or if you have no credit, a secured credit card is one of the best ways to build credit. For you to get a secured credit card, you have to come up with a collateral. The money you come up with is going to determine the credit limit that you’re going to get on the card. You will get a limit that’s the same as the amount you put down as collateral: i.e., you bring a $300 deposit, and you get a secured credit card with a $300 limit. The bank holds on to your deposit and will use it to pay off the card if you start being late on your payments. And because your card is backed up by a collateral, the bank bears little to no risk and thus you get an interest rate (APR) that’s pretty competitive.

Unsecured Credit Cards

There also are unsecured credit cards for people with bad credit. They essentially work the same way a “regular” credit card does, and you don’t have to put down a security deposit. The catch is that, since your credit is low, you’re considered by the credit card company to be a significant risk. Therefore you will be charged a much higher interest rate, because of your low credit score.

Both secured and unsecured credit cards can help you improve your credit score because since they’re credit cards, the companies that issue them report the activity on them to the credit bureaus. So if you make timely payments on them, over time your credit score should improve and then you won’t have to look for second chance credit cards anymore. Prepaid debit cards don’t offer that advantage.

Second Chance Credit Cards