As the cost of living or inflation is increasing day by day, managing their monthly expenses is becoming difficult for individuals. To fill these kinds of financial gaps, there are numerous types of money lending policies in the market. As a result of these policies, there are various loans and credit cards available in the market. But to avail these services, a good credit score is required. If an individual is not having a good credit score then he is unable to avail a lot of benefits. Well, let us understand why a credit score is important.
The credit score of a person tells a lot of things. It can tell what type of financial lending services he can avail and how much extra money he has to pay in order to avail these services. A credit score is basically a number which represents the way a person repays his bills. For example, if a person timely pays his bills and loan payments (if any) then most probably he is going to have a good credit score. Here one thing must be noted that the credit score majorly depends upon the payment history of a person but there are still other factors like total debt, monthly income, previous credit card accounts, rejected credit card applications etc.
Why good credit score is important?
Well, credit score determines how a person repays his bills. If an individual has a bad credit score then this means that he is not good in paying his bills. Now accordingly companies cannot put their money in the doubtful channels. That is why they only trust the individuals who have a good credit score. To solve the problem of credit score, the system has provided a lot of methods. Through these methods, any individual can improve his credit score from scratch. The methodology is to provide them with credit cards which can teach how they should be used. These are special credit cards in the market with some security features. Therefore in case, the individual is unable to pay the money then banks can use that security feature to claim their money.
•Cards issued by the primary banks: The banks offer a free credit card. When there is a trust factor between bank and client, the bank offers these cards. This is a great way of using the credit card when the credit score is at a low level. Since the card is offered by the bank, it adds a positive point in the credit report prepared by credit bureaus. If an individual is unable to pay the initial security amount in case of secured credit cards then this is the best option.
•High Fee Unsecured Credit cards: Though unsecured credit cards are only available for the individuals having good or excellent credit history but some banks and Companies provide these cards to the individuals with low credit also. These cards do not need any deposit. The fee charged by the lenders is very high. It is advised that if an individual has a bad repayment habit then he should ignore these cards as they can put him under huge debt. Following good practices like timely payments can help in increasing credit score.
•Secured credit cards: They are also called as credit cards for bad credit. Secured credit cards are used by people who have a low credit score or have no credit history. Usage of this card is the easiest and secured way of building credit. Let us understand why it is so:
Secured credit card is backed by a cash deposit. This cash deposit is also called as collateral. This means that the customer needs to deposit a certain amount of cash to the lender and only after the deposit he can use the card. This deposit amount is equal to the credit limit of the secured credit card.
For example, if a person has a low credit score and wants to build credit then he can avail a secured credit card. If he purchases a card with the credit limit of $1000 then he needs to deposit $1000 at the time of purchase.
What is the need for depositing the amount equal to credit limit?
This deposit amount reduces the risk of the credit card issuer. As the customer is not having a good credit score, it is difficult for the issuer to trust the customer. As bad credit score represents bad repayment habits, customer can default the payment. Therefore, the issuer needs to secure the amount. In case the customer defaults the payment for a long time, the issuer can use this money to recover his original amount. When the customer will return the secured credit card in future, he can take his deposit amount back. Impressed by the payment behaviour of the customer, credit card issuer can promote him to use unsecured credit cards.
Credit card comparison of Secured vs prepaid cards: Prepaid debt seems just same like secured credit cards. The user has to pay the money before he can use the card. One major disadvantage is that the user is using his own amount to make purchases. The money is not borrowed. Therefore the activity is not reported to the credit bureaus. As a result of this, the credit score is not improved. Also in many cases, users have to pay a fee to purchase prepaid credit cards but secured credit card does not cost anything.
What are the best credit cards for bad credit to use in 2020?
•Reflex MasterCard Credit Card:
Users with all credit types can apply.
See if you’re Pre-Qualified with no impact to your credit score
All credit types welcome to apply
Free access to your Vantage 3.0 score from TransUnion* (When you sign up for e-statements)
Monthly reporting to the three major credit bureaus
Fast and easy application process; results in seconds
•Indigo® Mastercard® for Less than Perfect Credit
Pre-qualify for a card today and it will not impact your credit score
Less than perfect credit is okay
Mobile account access at any time
Fraud protection for stolen or lost cards
Account history is reported to the three major credit bureaus in the U.S.
•Merrick Bank Secured Visa® from Merrick Bank
Choose your own credit line based on how much money you want to put down as a security deposit.
Initial deposits can be from $200 to $3,000. You can increase your credit line at any time by adding additional money to your security deposit, up to $3,000.
After 9 months, we review your account for a credit line increase. No additional deposit required!