We've all been there – a couple of financial missteps, and suddenly we're fanatically combing through our options for second chance credit cards for bad credit. Fear not! Your credit score doesn't have to haunt you forever; bad credit is not a permanent mark. In fact, great credit rebuilding tools do exist, and we're here to breakdown the top options and strategies in a language that every millennial can get behind. So, let's dive into second chance credit cards, how they work, and how they can put you back on track to having a robust credit score.
Second Chance Credit Cards For Bad Credit Table of Contents
What are Second Chance Credit Cards?
Second chance credit cards, also known as credit cards for bad credit, are specifically designed to help individuals rebuild their damaged credit. These cards cater to people with low credit scores and, generally, come with features that support credit building. While these cards may have higher interest rates, fees, or lower credit limits than their counterparts for excellent credit, they remain an essential tool for many on the road to credit recovery.
Types of Second Chance Credit Cards
There are two main types of second chance credit cards: unsecured and secured.
- Unsecured Credit Cards: These cards do not require you to place any deposits and work just like standard credit cards. However, they often come with higher interest rates and fees compared to secured credit cards, as well as lower credit limits.
- Secured Credit Cards: These cards require you to put down a security deposit to obtain a credit line. The deposit acts as collateral and is typically equal to the credit limit assigned to you. Since there's less risk to the issuer, secured cards tend to have lower interest rates and higher approval odds compared to unsecured cards. Many secured cards also offer the opportunity to 'graduate' to an unsecured card after responsible use over time.
How Do They Help Repair Your Credit?
Like any other credit card, second chance credit cards can help rebuild your credit score when used responsibly. Here's how:
- Make payments on time: Timely payments constitute 35% of your credit score, so it's crucial to make payments on or before the due date on your credit card statement. This habit will show creditors that you can responsibly manage debt and improve your credit score over time.
- Keep your credit utilization low: Credit utilization, the percentage of available credit you're using, makes up 30% of your credit score. Keeping your balance low relative to your credit limit (ideally, under 30%) will positively impact your score.
- Time heals all: Second chance credit cards, when used responsibly, allow your credit score to slowly improve as older negative items fall off your credit report. Generally, most negative items stay on your report for seven years.
Second Chance Credit Cards For Bad Credit Example:
Jane's credit score took a plunge after she defaulted on her student loans and missed several credit card payments. Determined to repair her credit, she researched second chance credit cards and decided to apply for a secured card. Jane was approved for a $500 credit limit after placing a $500 deposit. To support her credit-building journey, she set up automatic payments and diligently monitored her spending, so her balance never exceeded 30% of her credit limit.
After 12 months of on-time payments and low credit utilization, Jane reached out to her credit card issuer to discuss "graduation" to an unsecured card. Impressed by her responsible usage, the issuer agreed and returned Jane's $500 deposit. Over the next couple of years, her credit score improved significantly, giving her access to better loan terms and increased credit limits.
Congratulations! You've leveled up your knowledge on second chance credit cards for bad credit. With this newfound insight, you can confidently rebuild your credit and kiss bad credit goodbye. Remember to share this article with your friends and fellow millennials who might benefit from this info, and be sure to navigate the financial realm of Flik Eco for other enlightening guides on credit cards, investing, and more. Here's to rebuilding your credit and brighter financial horizons!
