Why you should get a secured or guaranteed credit card if you have bad credit

I know a thing or two about having poor credit. It can ruin your plans to buy a car, house, or even just rent an apartment.

Enter guaranteed and secured credit cards. They offer those with bad credit the opportunity to qualify for a credit card and build back their credit rating with lower risk than traditional credit cards.

What happens if you have bad credit

Having poor credit doesn’t mean you’re a bad person. There are lots of reasons why your score could be low and not all of them are always in your control. So many people these days graduate post-secondary school with a mountain of debt. Then, they have to find employment in a struggling economy. A recent report identified insolvency as a worsening issue, and the most at-risk are single parents, millennials and fixed income retirees.

Declaring bankruptcy is something you never want to do. Doing so may get you out of debt, but it knocks your credit score right down to the lowest rating possible. It can take anywhere from six to 14 years for your record to be clean, depending on whether it’s a first bankruptcy or not.

Credit-building cards are your friends

If you have a really low score, you’ll want to start building your credit score back ASAP. The problem is, if you have really bad credit, it’s next to impossible to qualify for anything but the most unappealing of loans: predatory payday loans and super high interest loans from alternative lenders. So, what if you need a credit card to more securely and conveniently handle online payments and bookings?

You’ve basically got two options: guaranteed credit cards and secured credit cards.

These cards work just like normal credit cards, but they’re marketed towards those with bad credit histories because they limit the risk of defaulting by offering smaller credit limits, higher fees, and requiring security deposits that can help cover bills in the event of a missed payment. These cards rarely, if ever, offer any rewards, but they will build your credit history as you use and pay them off every month.

A guaranteed versus secured credit card

Because these credit cards are geared for those with bad or no credit, they have a lot of features in common, but the main difference between the two is an important one.

Both card types offer guaranteed approval. Secured cards are named such because they will always require a security deposit for approval. Guaranteed cards may or may not. Another difference between these cards is that secured cards will more often than not require the cardholder to put up a deposit equal to the credit line. That means if you put up $300, you get a credit line of $300.

By contrast, a guaranteed card might also require a deposit of $300, but depending on how good your credit score is, you could be approved for a credit line of $1,500, indicating a bit more trust and leniency from the lending company.

Outside of building credit history, guaranteed credit cards are not the greatest cards for everyday use. But if you’ve had credit troubles in the past and no longer have any unsecured cards, don’t think that you should shy away from getting a credit product ever again. It can take years for your credit history to clear, so speed up the process by using a guaranteed or secured credit card.