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Got bad credit? Look to these types of cards

By Vanessa Tripodi

Having bad credit once meant having no credit at all. Fortunately, there are now a number of credit cards available to you if you have a poor credit history or no credit history at all. These bad-credit credit cards can give you back the freedom and convenience of paying with plastic, while allowing you to rebuild your credit history with responsible spending and repayments.

So now you're wondering whether there's a catch. There is. There can be significant penalties that come with bad-credit credit cards, but there are some which are avoidable. Almost across the board, you will find that bad-credit credit cards have a high annual percentage rate. However, while the APR will be higher than for someone with a good credit rating, you can still shop around for the best rate. You will also find that a lot of bad-credit credit cards will have higher fees. This includes a more substantial annual fee, higher transaction fees, and stiffer penalty fees for going over the limit and forgetting a payment. In this case, too, you can shop around for the card with the lowest fees.

Some bad-credit credit cards will also offer lower repayments, which may initially seem like just the feature you are looking for. However, it is important to remember that when you pay less each month, it will take you longer to pay off the balance. You will end up paying more interest to the credit card issuer.

However, bad-credit credit cards are not all bad; there are some issuers that genuinely want to help you rebuild your credit rating by using their cards. Therefore, they may offer you a prepaid credit card that looks and acts like a regular card, but only allows you to spend the amount that you prepay. Some prepaid credit cards will also have transaction limits and balance limits. A prepaid credit card also means no repayments and no interest charges.

Other helpful features of bad-credit credit cards include a higher initial APR, which is then lowered after the first year if you have shown responsible spending and repayment habits. These habits not only help you qualify for the lower APR, but also they look good on your credit report and help you rebuild your credit score faster. Some bad-credit credit cards will also send monthly reports of your spending habits to major credit bureaus so that you can reap the benefits of your good behaviour sooner.

Of course, securing a credit card to show responsible spending habits is just one way to overcome bad debt. You should also make sure to contest transactions on your credit report you are not responsible for immediately, so that they are not attributed to you. Also try to be realistic about what you can afford and use your credit card wisely. When using your new credit card, always pay your monthly payments on time, and make additional payments where you can to keep your balance low.

Just because you have a troubled credit history doesn't mean you can't be proactive about cleaning up your credit report. As with any new financial product, you simply have to shop around for the best deal for a bad-credit credit card.

Article by Vanessa Tripodi 

Updated: August 11, 2014

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