Second Chance Credit Cards
Getting a second chance credit card can help you repair your credit while teaching you proper money management habits that will help you – and your family – for years to come.
What is second chance credit?
You’ve faced a major financial setback and it’s hurt your credit. Maybe even destroyed it. It’s easy to think that you’ll never get back to where you were before, especially if you once had great credit.
Sometimes, things happen beyond our control. Bankruptcy. Defaulting on a loan. A repo’d car.
In that moment, it can feel like the world’s come crashing down around you. It can feel as if no lender will ever trust you again.
And if no lender trusts you enough to give you a second chance, then how can you rebuild your credit? How can you prove to the world that you can manage your personal finances?
Fortunately, there are ways to repair your credit without having to fight tooth and nail to do so. One of these ways, which this article covers, is what’s known as the “second chance credit card.”
Everyone faces major financial setbacks from time to time. Learning to understand your credit and manage your personal finances again can go a long way in making the credit repair journey much easier.
A second chance credit card may be just what you need. But before you decide, read on to make sure you really know what they’re all about.
How can a second chance credit card affect my credit?
Your credit score can have major, lasting consequences on your personal finances – and not just your present situation. Having solid credit can help you achieve your financial goals – from buying a house to getting a better credit card with low APR and great rewards.
People with a credit score of 680 and above have greater approval odds on anything from mortgage and auto loans to business loans and increased lines of credit. A lower score doesn’t mean automatic disqualification, but it can certainly make life more complicated.
With a second chance credit card, you can start to repair your credit in the following ways:
By making consistent, on-time payments.
By showing your current (and any future) lender that you can manage your personal finances.
On top of that, since your payment history makes up 35% of your total credit score, the more on-time payments you can make, the greater the impact.
A credit card – or nearly any loan, really – is a great way to get started on your credit repair journey.
For more information relating to your credit score and what you can do to repair it (especially if you have poor credit), check out this post.
How do I qualify for a second chance credit card?
Fortunately, it is relatively easy to qualify for a second chance credit card.
Due to their nature as a second chance line of credit, lenders who offer these cards understand that the borrower (you) may not have the best credit at this time. Thus, they tend to make the application and qualifying process easier than it would be if you were seeking a more traditional loan or line of credit.
In some cases, the application process is entirely online, and the response is near instantaneous.
Some things you may need before you apply include:
Your contact info (address, phone number, name…)
Proof of income
Certain lenders will prequalify you, while others will offer preapproval.
In most cases, it is better to go with a prequalifying credit card instead of a preapproval one. That way, there will be no “hard inquiry” on your credit report. The fewer hard inquiries you have, the better.
Should I go through a bank or credit union for a second chance credit card?
Both options have their merits, and it depends on what you’re looking for. For example, banks do not typically require you to be a member first (unlike credit unions) and they may offer better rewards.
However, a credit union is often the better choice if you’re trying to rebuild your credit from scratch.
Pros of credit unions:
Tend to have lower rates (eg. annual interest rates and late fees)
They have a federal limit on how much they can charge in interest
More focused on you, the consumer, as opposed to banks
Higher chance of offering a second chance credit card or similar program
May be more understanding of their members’ financial hardships
May offer free credit counseling to members (banks can do this, too)
Often offer grace periods (sometimes up to 28 days) for late payments
Whether you choose a bank or credit union – or an alternative lender –, be sure to do your research first. Always read the terms and conditions.
Easiest credit cards with “guaranteed” approval
Keep in mind that there is no such thing as “guaranteed” approval. And if you find an offer for “guaranteed” approval online, make sure you triple-check and cross-reference the company or lender before agreeing to anything. More often than not, a so-called guarantee comes with its share of problems – problems you probably neither want nor need.
That said, there are quite a few options out there when it comes to getting a second chance credit card with very high approval odds.
First Digital NextGen credit card
Nearly instant approval
$300 initial limit, but only $225 available at first
No monthly fees for 1 year
35% APR
$75 annual fee for the first year, $48 annual fee after that
$300-$700 initial limit, increases after 6 months
Prequalify – no hard inquiries
Reports to all 3 bureaus
25.90% - 29.99% APR
$75 - $99 annual fee
Unsecured credit card
$300 initial limit
Need $100 in savings to open an account
No credit check, no hard inquiry
Nearly instant approval
$9 admin fee to open
23.99% APR
No annual or app fees
$500 to $50k limit (usually no higher than $25k)
8.99% - 29.99% APR
Cannot be used at ATM
620+ credit score
Offers 1.5% cash back
$400 initial limit
No credit check
Requires good income-debt ratio
$75 annual fee first year, $99 annual fee after
24.9% APR
Unsecured card
No deposit (unsecured card)
$300 limit
Nearly instant approval (online app)
$89 one-time admin fee
QuicksilverOne from Capital One
$300+ credit limit
1.5% cash back
No deposit
$39 annual fee
Prequalify / easy qualifying process
Requires fair credit (limited history or recent loan default ok)
26.99% APR
OpenSky® Secured Visa® Credit Card
$200 minimum deposit, up to $3k
Secured card
Quick application process
No credit check needed
Reports to all 3 bureaus
$35 annual fee
How to compare second chance credit cards
There are several key factors to consider when choosing which credit card best suits your needs. Before opening an account, ask yourself the following:
Does your new credit card come with inflated purchase prices?
Are there late fees (and what are they)?
How high is the APR and is it variable (meaning it can increase)?
Are there any hidden transaction fees (ATMs, in-person, online)
What’s the repayment period like? Can you pay in time?
Does your credit card require additional warranties, insurance or collateral?
Always read the terms and conditions thoroughly.
Does the financial institution report to all three credit bureaus (TransUnion, Experian and Equifax)? If not, consider looking elsewhere.
If your second chance credit card is a secured card, can it eventually turn into an unsecured card with a higher limit and with better rewards?
What rewards, incentives, and other bonuses does your card offer?
Will your account pay dividends (in the form of accrued interest)?
Is your deposit (if required) fully refundable?
If this all seems overwhelming to handle on your own, bring along a friend to help you out. And most of all, if you’re feeling pressured to decide, take a day or two away before applying. Making a decision for your credit based on stress can lead to more problems than not.
Why not just get an unsecured credit card?
When looking for a second chance credit card, there’s a good chance you’ll find that most of them are what are known as “secured credit cards.” This is because a secured credit card is a card that requires some form of collateral (usually a cash security deposit), whereas an unsecured credit card does not.
So, then, why not just get an unsecured credit card?
Because, even though unsecured cards do not typically require any form of collateral, they often come with higher risks – both to you as the borrower, and to the lender.
Pros and cons of unsecured credit cards
Let’s take a look at some of the biggest pros and cons of unsecured credit cards.
Pros:
You do not need to put down a security deposit
They often come with higher limits than secured credit cards
Unsecured cards typically have better rewards programs
They do not usually require upfront costs (but watch out for hidden fees)
Cons:
Interest rates (APR) can be sky high if you have poor credit – up to 29.99%
Odds of getting approved with poor credit are low (and almost always come with higher interest and fees)
Depending on your credit, some unsecured cards may still only offer $200-300 credit limits
These can still have other non-refundable fees, such as the application or account setup fee
Pros and cons of secured credit cards
And now for the biggest pros and cons of secured credit cards.
Pros:
These offer much higher approval odds than other credit options
They may not require a credit check at all
Your initial deposit can accrue interest, which you will (often) get back when you close the account
Some lenders will give you a higher spending limit than the deposit itself
Secured cards can be converted into unsecured cards with higher limits with good spending and money management habits
Like any other second chance credit card, secured credit cards reverse credit damage over time (usually without additional fees and with minimal risk to you)
Cons:
They require a cash deposit (put into a secure savings or CD account)
The initial spending limit tends to be low or equal to the amount of the deposit
They have a low spending limit
If you need money fast, this is not the best option for you
What about partially secured credit cards?
The partially secured credit card is a hybrid of secured and unsecured credit cards. In brief, a partially secured card is one that requires you to put down a small deposit but offers you a somewhat higher limit.
These can be perfect for you if you need to repair your credit, while also having a little bit of extra money as a buffer… just in case. Be aware, though, that partially secured cards often come with the same pros and cons as their counterparts. Watch out for APR and other fees and limitations.
Which type of second chance credit card should I choose?
Ultimately, there are a lot of options out there, but when it comes to choosing based on type of credit card, make sure it meets the following conditions:
Reports to all three credit bureaus
Approves you despite your credit (especially good if you can prequalify)
Has affordable (or no) startup costs, annual fees and APR
Bonus condition:
Has the option for a higher credit limit
Risks of second chance credit cards
With any type of loan, there is always a risk to the borrower and to the lender. Before you jump on a second chance credit card, make sure you know these risks. Better to be prepared than to make a mistake you could have otherwise avoided.
One of the most common mistakes borrowers make is ending up with a higher debt-to-income ratio than they can handle.
As with any loan (credit card, personal, etc.), there’s the risk of spending more than you should. By not budgeting your earnings with your spending properly, you may be unable to pay off your entire credit card each month. When you don’t pay it off in full, the interest kicks in.
The higher monthly balance you leave on your card, the higher the interest. When you have a low interest – say 3-5% -, this may not be so bad. But when you have a 19.99%+ APR? This can become a major burden.
In many cases, it can have a domino effect. A leftover balance from the previous month combined with additional credit card utilization leads to higher and higher balances over time.
Managing your new credit card
To negate this problem, try to only use what you can 100% handle. And if you’re already in a slight deficit, it may be time to redo your budget.
Remember, too, that there are several factors that go into your overall credit score. While payment history accounts for 35%, credit utilization takes up 30%.
What does this mean for you? Simply put, if you are using too much of your available credit card balance, then you may be actually hurting your credit score, rather than repairing it.
As a general rule, use no more than 30% of your available credit (across all lines of credit and loans). If you have a credit card but haven’t started using it yet, you can also tuck it away in a drawer somewhere and forget about it. As long as your lender isn’t reporting anything as late, then simply having an open account will help your credit score improve.
If you do use the card, paying off the monthly balance in full can save you from getting hit with interest.
Making the most of your second chance credit card
A second chance credit card will help your credit score over time, as long as you consistently make on-time payments. The more you can prove your ability to use credit and pay off debt, the more your credit will improve. This means:
Better rates and higher lines of credit
More rewards (cash back, travel miles…)
Greater approval odds for big-ticket items (property, vehicle, etc.)
Keep an eye on your credit score to see how things are progressing. Credit Karma, for example, is a free resource for just that. Learning what influences your credit report will help you to fix your score.
If you’re not used to have a credit card, take it slow. Start by using it on smaller purchases, ones you can easily pay back. These might include:
Gas
Groceries
Utility bills
It’s perfectly okay to go little by little. These small changes will help you establish better money management habits and protect you from other risky financial behaviors that could have otherwise been avoided.
Other options besides a second chance credit card
If you need to rebuild your credit, but the thought of getting another credit card fills you with dread – or you just want to know your options – there’s good news.
Credit cards aren’t the only way to boost your credit score.
Some great alternatives include:
Getting a cosigner on a bigger loan (provided your debt-to-income ratio is fine)
Becoming an authorized user on someone else’s account (make sure they have a credit score of 720+)
Getting a credit builder loan or account (similar to a secured credit card, this is a loan that lets you build your credit up, but requires a deposit or other form of collateral)
Final thoughts
Repairing your credit doesn’t happen overnight, but it will happen if you go about it with care and a little bit of patience. Your credit will change with different events in your life, sometimes for the better and sometimes now. Even if you’ve made some mistakes along the way, you deserve a second chance.
A second chance credit card is not the only way to repair your credit, but it’s a way that works and is pretty simple. And, for many of us, that’s all we need.