What Are Second Chance Credit Cards?
Second chance credit cards help people who have bad or no credit improve their payment history with strict requirements.
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What is a Second Chance Credit Card?
Most people, if not everyone, know just how essential a good credit score can make life easier. However, sometimes people tend to forget that they can easily mess up their credit score by accidentally making late payments or missing a few payments. This will make you have bad credit. Always remember that building your credit score is pretty hard, but destroying it is simple. Luckily, several ways can help you build your credit score back, but it will take some time.
It is worth mentioning that you do not have to settle for a secured credit card to achieve this. On the contrary, you can rebuild your credit score using a second chance credit-card. But before you get a second chance credit-card, there are a couple of things you need to know. When you get a new credit card, ensure that you use it appropriately if you want to head in the right direction.
Second Chance Credit cards
You will have difficulty finding a credit card issuer who willingly wants to approve your credit when you have bad credit. However, despite having a poor credit score or a bad credit history, you can find a credit card company willing to approve your account. So, essentially, that is what a second chance credit-card is. Generally, this credit card comes as an unsecured credit card and a secured credit card.
Secured Credit Cards
You can use several tools to build your credit, and a secured credit card is one of those tools. Secured credit cards can be obtained from financial institutions such as credit unions and banks. Usually, a credit card company will approve applications for a secured credit card from individuals who have no credit or bad credit because these accounts have lower risks associated with them.
When you apply for a secured credit card, you have to deposit it to the bank issuing the card to open the account. The general rule is that the much you will have deposited will be equivalent to your credit limit on that account. Therefore, if you place $500 as your security deposit, the bank could approve you for a credit card limit worth $500. It is worth noting that every bank works differently, so you may want to consult beforehand.
Apart from the security deposit, you must pay when you open the account. Secured credit cards work pretty much the same as standard credit cards. Well, for the most part. For instance, while using your second chance account, your issuing bank expects you to repay the charges according to your credit card's agreement terms. Therefore, you should make a monthly minimum payment, but it will be best if you set a goal to pay off your statement balance fully.
Usually, most credit card issuers report to the three primary credit bureaus. However, it would be best to confirm this in advance before applying for the second chance account. If they do not report to the major credit card bureaus, it beats the point since getting a second chance account from them will not impact your credit or rebuild it. It would be best to find a credit card issuer who reports to the major credit bureaus.
Unsecured Credit Cards
Suppose you are looking for a second chance credit card with no security deposit. The best option to go over will be unsecured credit cards. Essentially, an unsecured credit card is an account where the issuer does not need you to deposit any cash as collateral to open an account for you.
While this option may be convenient, it is not the best approach. It would help if you had a plan before beginning the application process for an unsecured credit card. Your application is also likely to be denied if you do not have any plan. If you have a poor credit card history, it would be best to consider getting a credit card for individuals with bad credit, also known as a subprime credit card.
It is worth noting that these credit cards are expensive than credit cards made for individuals with excellent credit scores. For instance, the yearly percentage rates on these cards can go up to 20% or even more, not forgetting that they also come with an annual fee.
Suppose this is the type of second chance account you are interested in. It will be best to do your due diligence before applying with the first subprime card issuer you come across. It is worth mentioning that the customer service for these types of cards is not that great either. Therefore, take your time to get all the information you need to make an informed decision.
Second Chance Credit Card Pros
- You could earn cashback or rewards on your purchases
- Credit cards have excellent fraud protection than cash or debit cards
- You could qualify for a credit card without needing a cosigner
- If you manage your credit card well, it can help you rebuild your credit score and your credit history
Second Chance Credit Card Cons
- You will likely get approval, but it is not guaranteed
- You may need to deposit a specific amount before opening the account
- The annual fees and the interest rates on these accounts are pretty high
- A poorly managed credit card could worsen your credit
What to Consider When Choosing a Card
There are several essential factors you need to consider before choosing any credit card. If you are getting a credit card because you have bad credit and intend to improve it, you should know that they will cost you more if you do not manage them well. Some of the things you should consider include
Credit Reporting
If the point of getting a specific credit card is to help improve your credit, you need to ensure that the credit card issuer reports to the credit bureau. If they do not, getting a credit card will not help repair your credit in any way. This is the main difference between debit cards, prepaid cards, and secured cards. Knowing the difference will make a significant difference.
Extra Fees
It is worth mentioning that most cards for people with a poor credit card often have extra fees, and the rates are also pretty high. Therefore, before you sign up for a card, ensure you have asked about all the additional fees that may be attached to the card. Being aware of the costs associated with the card ensures that there are no unplanned surprises.
High APR
Another thing you should know about these types of credit cards is their interest rate is also pretty high than other cards. Paying your total balance every month is an excellent way to ensure that you are saving money on interest rates. Since your credit card already has a high-interest rate, carrying the balance to the next month increases your interest rate. Therefore, always keep this in mind when making your payments.
Annual Fee
The annual fee of credit cards can cost you up to $100 annually to hold the card. It is worth noting that whether you have a secured or an unsecured card, you do not get this fee back. Therefore, you may also want to check on this before getting a credit card from the first credit card issuer who is willing to approve your account.
How a Second Chance Credit Affects Your Credit
The majority of the items reflected on your credit card report can positively or negatively affect your credit score. This rule also applies to second chance credit, meaning that you have to manage your account well if you intend to fix your credit. Any credit card can affect your credit score in the following ways:
- Your payment history affects 35% of your FICO score. This means that a late payment will worsen your credit.
- Your credit utilization affects your credit score, so you need to pay your balances in full every month or risk hurting your score.
- Applying for a new credit card can potentially hurt your score, albeit slightly.
Who Should Apply for a Second Chance Credit Card
Anyone who has a bad credit score or credit report that they would like to improve can apply for a second chance credit-card. Credit cards are an excellent way to rebuild your credit since they will help you create a positive, credit history when you manage it well.
Suppose you are sure you are ready to manage a new credit card with low credit use habits and timely payments. Then this may be the right choice for you. However, deciding if this is the right choice for you is ultimately a personal choice.
We can help you improve your credit score. There are several tools we offer to help improve your credit. This includes a second chance credit card with no security deposit, and you can qualify for instant approval amounts between $300 to $1000. We also offer secured credit cards with a minimum deposit of $200, and there is no minimum score or credit check needed.
