Credit Cards for High Risk Individuals

Unfortunately, your credit can go downhill quickly for many reasons, leaving you out in the cold and labeled "high risk" by credit issuers like the credit card companies.

Maybe your credit suffered because you lost your job and were out of work for a while, leaving you unable to pay off your monthly balance (and quite possibly racking up even more debt by using your credit card in order to acquire the everyday necessities like food and electric bills). Maybe you accidentally miscalculated your budget, or were unable to pay due to poor planning. And maybe it was something else – but whatever the case, a low credit score can be a real thorn in your side.

So what do you do when you have been labeled "high risk"? To correct the situation, you need to work on rebuilding your credit. Debt consolidation can help, but if that will not fix the problem entirely and you want to actively prove your commitment, you do have other options. One of those options is to get a credit card that was specifically created with high risk people in mind. Credit card companies often offer programs to help you rebuild your credit, and the most common types are secured credit cards and prepaid credit cards.

A secured credit card is a credit card that requires you to put up collateral in order to be able to use it. To get a secured credit card, you will usually need to put down a deposit that is equal to or greater than the amount of credit that will be extended to you. The deposit can be in the form of cash, but sometimes can also be a vehicle, a house or some other kind of property with monetary value.

These cards are geared towards people with bad credit histories as well as people with little or no credit history at all, good or bad. The line of credit that will be extended to you with a secured credit card is usually fairly low – often in the $250 range. They also often require an application fee (sometimes non-refundable, even if you get rejected). As you use your secured credit card and make the monthly payments on time, you can ask to have your credit limit raised after a time. Making the monthly payments on time helps rebuild your credit and prove you are trustworthy again, eventually repairing the problems enough that you can likely get an unsecured card down the road.

Prepaid credit cards work differently than secured credit cards. In fact, they are not technically real credit cards at all, though you can use them as if they were. For example, you may be able to use your prepaid credit card at a point-of-sale machine in a store, just as if it were a real credit card. The only difference is that you cannot rack up debt with a prepaid card – in order to use it, you must put money on it yourself beforehand. With a prepaid card, you get to determine your line of credit, since it is you that decides how much money to put on it. Most of these cards do not have finance fees involved, but even so, other charges may apply, such as startup fees, application fees, monthly fees, reload fees, or ATM fees. Obviously, all of those extra fees are not ideal, but if you are a high risk individual, you may not have much choice in the matter!

There is no doubt that your credit can make or break you, so you want to avoid being labeled high risk as much as possible, since, short of never opening a line of credit at all, the situation is never completely out of the question for you. If you do find yourself in a bad financial spot and with poor credit, though, all is not lost. You can rebuild your credit history by taking advantage of secured credit cards or prepaid credit cards to help you out.

Mike is the manager of Credit Card Finder, a credit cards portal dedicated to informing Australian consumers of the latest and greatest cards on offer.