Credit Cards for Bad Credit – The Price You Pay
Plenty of people these days have some form of bad credit information on their credit files, varying from a late payment or two to a full default on a debt. With credit cards becoming so important in day to day life, are there options available to people with bad credit who want to carry a credit card?
The answer is a qualified ‘yes’. Many card issuers will be perfectly happy to offer a mainstream card to people with slight blemishes on their record, but who also have a good income and other positive factors in their favour.
Then there are the cards specifically aimed at people with more serious credit misdemeanors in their histories. These bad credit credit cardshave a high approval rate, but at a cost.
Firstly, these cards have an interest rate far higher than those featured in the credit card best buy tables. A 30% rate isn’t uncommon, and some cards offer a frankly exploitative rate of over 50%. This means that borrowing on these cards is extremely expensive, and not to be recommended.
Low Credit Limit
People with a poor credit history are naturally a higher risk to the card issuer, and so to minimise the risks a low credit limit will be assigned to the account when it’s opened. This credit limit may be able to be increased over time if you can show that you can operate the account responsibly and keep up with your repayments.
In cases where the credit rating is extremely low, the card issuer may even demand that you pay a security deposit before the card is issued. This is a sum of money held in reserve that can be used to pay off the card if you default on your debt. This deposit will usually be refunded after you’ve had the account for some time with no problems.
A less serious drawback is that you’re unlikely to be offered any extra features on the card. You can forget about getting a 0% balance transfer offer with a bad credit credit card, and the chances of being offered cash back or rewards are slim indeed. All you’re likely to get is the convenience of using your card to pay with in this increasingly cashless society.
Alternatives to Bad Credit Credit Cards
If all this makes applying for a credit card when you have a bad credit rating seem unattractive, then you might like to consider an alternative.
Secured or Prepaid Cards
Prepaid credit cards can be used in all the same situations as a normal card, but with one vital difference: you need to ‘load’ your account with funds before you can use it. This means that it’s not actually a credit card at all, as you can’t borrow money on it, but nonetheless it can make a convenient payment method for online or telephone shopping.
These are a form of payment card linked to your bank account, and you can’t spend using them if there isn’t enough money in your account. This means that banks are more willing to issue them to people with poor credit ratings. Note, however, that they can’t always be used in as wide a range of places as a standard credit card.