Low rate credit cards for bad credit

A lot of people have had a difficult time in this economy and are looking to rebuild their credit without being taken to the cleaners.  Here are a few tips on how to get low rate credit cards even if you have bad credit.  You’ve got a few ways to go.   The best way to get the lowest rate is getting a secured credit card.

Secured vs. Unsecured credit cards

Secured means that you can get a loan based on the collateral you have to back it up.  This way if you don’t pay back the loan then they will take the collateral as payment.

Unsecured means there is no collateral backing up the loan so if you don’t pay the loan the lender will have to take you to collections or sue you to the their money from you.

Secured Credit Card

The reason a secured card usually gives you the lowest interest rates is because the “secured” part of your credit card is being backed with your collateral.  So, if you don’t pay the lender, they will take your collateral as payment.  The way this works is in order to open a secured line you have to give the lender something to hold on to in case you don’t pay.  This is usually a couple hundred dollars.  They will hold on to the couple of hundred dollars and give you a limit to spend that matches what you have given them.  In this scenario they have $0 risk and therefore are keen to offer lower interest rates even if you have bad credit.  The good thing about starting with a secured card is that over time as you make your payments on time the lender will usually drop the secured aspect of your card, give you your collateral back and change your card to unsecured.

How to get a low interest rate secured credit card

The easiest way is to go directly to your local bank or look online.  When looking at your secured credit card options check to make sure that they will make the card unsecured after a period of time that you’ve made your payments on time.  Also, watch out for high yearly fees, high minimum deposit, APR.  The most important aspect of getting a secured is to make sure the credit card will report your payment history to the 3 bureaus, Experian, Equifax and Trans Union.    If they don’t report to the credit bureaus that you’ve  been paying on time then the secured card payments won’t do anything to help your credit rating.