The second chance credit cards are also known as “bad credit” credit cards. As the name suggests, these cards are designed for people with a bad credit history. People who were not able to pay their dues and/or are in debt are listed in this category.
Companies offering second chance credit cards believe that one should be given a second chance to fix their mistakes. This is a great opportunity for a person with a bad credit history to improve his/her score. The companies offering these cards will provide you with an option even if you are bankrupt.
There are two types of second chance credit cards:
- Second chance ‘secured’ credit cards
- Second chance ‘unsecured’ credit cards
Both cards offer different services and safety nets. The following information will distinguish them.
Second Chance Secured Credit Cards
First of all, you have to search for different banks and companies offering this service. There are different rates and deposit limits, therefore you should carefully evaluate them before going ahead.
You must know that this is like opening a new account so you have to deposit some money in it. Some banks would require a minimum of $400 to qualify for a second chance credit card. Once you get the credit card, your credit limit will be set according to your deposit. The deposit you made is a security, collateral in this case. If you somehow cannot manage to pay the bill the money will be deducted directly from your account. This seems fair enough, you don’t pay the bank on time and they get what you deposited, fair and square. However, this is not what you should be keeping in mind. This is an opportunity for you to get your credit record on the right path.
As you know you have to pay an extra percentage on credit card payments, in this case it is generally between 10-20%. You should be aware of this percentage so that you make sure that you pay your bill on time. If you are late in a payment, this percentage will be deducted from your total savings. If you cannot afford to pay the entire bill in a single payment then it is advised that you pay as much as you have. This will lower the interest amount you will have to pay, but be careful not to let it go longer, as the longer it goes the higher you will have to pay. Your punctuality will determine the success and failure of the second chance credit card system.
The bank you sign up for will require a yearly fee just as it is with a normal account. You might want to keep that as low as possible since you are already on the bad side of the credit record. Some banks or deals come with late payment charges, which could throw you off the edge; you should carefully study each and every clause and term on the form before signing up. There are also cases in which banks allow a limit extension on second chance credit cards; the limit extension gives you an extra limit on certain conditions, so you should also look into it in case you ever need it. You could only make this work in your favor if you are very careful with the terms and conditions.
Second Chance Unsecured Credit Cards
These unsecured second chance credit cards offer the same benefits as regular ones. Their objective is the same; giving an opportunity to people having bad credit scores to improve them. In this case, you should study thoroughly and research the terms and conditions of each and every bank or company offering them. These unsecured second chance credit cards are not difficult to find, but are difficult to maintain. They have very high annual percentage rates, putting the customer in a difficult position if they fail to pay the monthly dues.
The monthly rates on these credit cards are higher than secured credit cards, but they are affordable. A person with a bad credit history has to understand that the bank is taking a risk on him/her. As the bank is not asking for a deposit or collateral to be entrusted with them, they are taking a huge risk. The high annual and monthly rates are pretty much justified.
These second chance credit cards allow customers to build on their previous mistakes. You can use these cards anywhere you want to, there are no restrictions what so ever except for the credit limit. If you make the minimum payment or the full payment on time every month you will be exempted of interest. This will give you a physiological boost; you would know that you have freedom of expenditure the entire month as long as you can come up with the money at the end of the month. Your good payment activity will improve your credit score and the credit rating companies will be reported of your situation. This is an advantage over the secured credit card.
The unsecured second chance credit cards are an excellent way for bankrupt people to get their financial positions back on track. This is a lifeline for them. However, it doesn’t come without strict rules. As these people are highly risky, banks put very strict terms on these contracts. For a person who is looking to make amends to his mistakes, they would not have a problem following them. However, for an addict they might turn out to be very dangerous.
A final word:
Those who are looking to move out of bad credit ratings and looking to make amends should definitely try the second chance credit cards. You should always keep in mind that this is your last chance to solve your financial problems. Another mistake will not be tolerated in any case and you might lose your chance to get your financial position stable forever. Be punctual with payments, observe discipline, do not overspend and if possible, save as much as you can and get out of this position as soon as possible.