Having a bad credit history is a common thing since millions of Americans have bad credits due to several reasons. Bankruptcy, foreclosure, untimely payments of medical or student loan debts are just a few reasons to have setbacks on an individual’s credit score. However, bad credit or a low credit history affects individuals in many ways, for instance, while trying to borrow a home loan, rent an apartment, buy a cell phone, and even while finding a job.

Unsecured credit cards: These are the most familiar and common credit cards that are widely used. Here, there are no security deposits in the form of cash and the transactions work on the basis of mutual trust between the card issuer and the credit borrower. The interest rates and credit limits on these cards will be based solely upon an individual’s finances, employment situation and credit history. Although it requires having some established credit scores and is difficult to qualify for unsecured credit cards with bad credit, it is not impossible to get one. One can avail these cards mostly with a higher interest rate or with additional fees and with fewer rewards.

Secured credit cards: This is the most common type of credit card issued for people with bad or poor credit scores. In order to avail these cards, one must deposit a certain amount of cash which will act as collateral or security for the credits borrowed on the card. The deposited amount sets the credit limit for the cardholder. The card issuer can use the cash deposit in case the credit bills are not paid thereby reducing the risk of lending money to the cardholder, who has a limited or negative credit history.

Every individual’s activities on his credit cards will be reported to three major credit bureaus- Equifax, Experian, and TransUnion who compile all credit card profiles. Hence, making judicious and timely payments helps the individual to improve his credit score over time and enable to rebuild his credit profile. This will make him likely to qualify for a credit card with better terms in future by responsible use of a secured credit cards. Once, the trust with credits is re-established, one can even qualify for a traditional unsecured credit card. Hence, applying for a secured credit card is an important step in getting out of the credit woes caused by poor or bad credits in the past. It requires a lot of time and discipline on building the credit scores.

The below tips will help to improve the credit scores with a secured card.

• Use the card whenever possible at least for transactions involving smaller amounts. Every activity on the card counts and hence, use the card to record an activity in the profile.
• Ensure on-time payment of all bills including utilities and rents. Do not miss or make a late payment even once. Making a full payment of the monthly balance is great, but in the worst case scenarios, make sure at least the minimum payment is made without fail.
• Ensure there is no overspending with the card that is measured with a low debt utilization ratio. This is the ratio of the total amount borrowed to the available limit on the card. If larger amounts are borrowed through a credit card, it will be better to pay them right away or even before the bill arrives.
• Do not open multiple accounts at the same time as this activity may give out a wrong impression as you already are dealing with a bad credit history. If you are not able to manage your finances well with a single credit card account, how can you manage multiple accounts?
• Avoid closing too many accounts at once if you already have them. The credit monitoring and building of scores are entirely based on being able to manage your finances. If multiple accounts already exist, then closing them might give out an impression of the individual’s inability to manage multiple things simultaneously.

Now that we have discussed on how to build a credit score, let us discuss some factors to consider before choosing credit cards with bad credit.

Cash deposit requirements: Check the required amounts for a security deposit as this may sometimes not be worth going for if the credit card usage by the individual will be limited to smaller amounts, and the actual deposit could be used to pay off a more substantial debt that already exists elsewhere.

Interest rates on the cash deposit: There are some card issuers who pay an interest on the deposit amount along with using it as a security against any debts that are not paid.

Ease of qualification: Almost everyone can qualify for a secured card, but one must have the ability to deposit large amounts of security.

Initial credit limit: Although the security deposit sets the credit limits, there are some issuers who provide a higher limit. Or by maintaining a good score with the current card, one must be able to graduate to a card that offers a higher initial credit limit.

Credit reporting to all three major credit bureaus: It is important to choose an issuer who will report all the credit card activities to these bureaus to monitor your credit score and to see the improvement in the track record.

Annual fee: Find an issuer who charges lesser annual fees. Ideally, no annual fees will be collected from people with a good credit profile.

APR: The interest rates charged on unpaid monthly balance should be less.

On a final note, keep a periodic check on the credit scores by availing a free annual credit report from AnnualCreditReport.com. Ultimately, if the cards are played right, the credit situation of an individual can improve significantly in less time.