Rebuild your credit with prepaid or secured credit cards

If you're looking to establish or rebuild your credit, you may find its harder than you think to get a credit card these days. And, if you've had bad credit issues in the past, things like late bills, missed lease or rental payments, or medical bills that have been reported to credit agencies, it can be really hard to get a credit card or even a good deal on a cell phone, car insurance, and more.

A good way to establish-or reestablish-your credit is through what's known as a prepaid or secured-debt credit card. These cards basically allow cardholders to show that they have record of good payment with whatever financial institution is providing the card. These cards are one of the best ways to help reestablish a decent credit score, which allows you access to better loan rates and more.

Such cards differ from traditional credit cards in that the cardholder creates his or her own line of credit by setting aside a predetermined amount of money. Basically the cardholder creates a spending account for themselves and must replenish it on a monthly basis or potentially face fines for not replenishing the account.

Cardholders use the card just like any other credit card and as long as they make the appropriate monthly payments and keep that set-aside account full, the issuing bank will report the cardholder in good standing. For what's usually a small monthly fee, the issuing bank will report to the credit agencies-on a monthly basis-what the cardholder's repayment status is.

Since the secured-debt cardholders are financing their own line of credit, they're also not subject to the interest fees that banks charge normal credit card holders. Normal credit cards use unsecured debt-i.e., a line of credit-that they extend to customers like a loan and then charge interest and other fees on that loan until it is repaid entirely. The line of credit is based on the cardholder's income level and his or her payment history. Even if you do have bad credit and qualify for a credit card, the interest rate can be significant, and a secured credit card may still be a better, less expensive way to improve your credit score.

-Chris Meehan