Credit Cards

Pros and Cons of Bad Credit Credit Cards

A bankruptcy, foreclosure, repossession and late payments can trigger a bad credit score. A bad credit score closes the door on several credit and financing opportunities, which creates a real problem when you’re trying to rebuild your credit. You can always wait until negative items fall off your credit report and then apply for new financing. But why wait seven to 10 years? Apply for a bad credit credit card and start rebuilding your credit history today.

Bad credit credit cards are especially for people who have low credit scores and can’t qualify for other types of credit. These types of credit cards are relatively easy to obtain, and if used responsibly, they help reverse bad credit. Yet, these credit cards aren’t always the most ideal. Before applying for a bad credit credit card, consider the pros and cons.

Pros of Bad Credit Credit Cards

1. Improve your bad credit. Bad credit credit cards are a stepping stone to good credit. They work just like credit cards for people with good credit. Your creditor extends a line of credit and requires a minimum payment each month. As long as you stay within your credit limit and pay your credit card bill on time each month, you can improve your bad credit. Your creditor reports each timely payment to the bureaus. This adds points to your credit score and improves your creditworthiness.

2. No credit scoring. While the company that issues your bad credit credit card will likely check your credit report and score, neither factors into the approval. You don’t need good credit to obtain these types of credit cards. In fact, you don’t need credit at all. The requirements for a bad credit credit card are minimum. If you’re over the age of 18 and employed, you’re likely to be approved for a bad credit credit card.

Cons of Bad Credit Credit Cards

1. Upfront fees. Bad credit comes with a price, and if you’re applying for a bad credit credit card, be prepared to cough up some cash. Bad credit credit cards are typically secured bank cards. These credit cards are offered by banks and credit unions and require a security deposit. These deposits range from $300 to $500. Deposits serve as collateral and must be paid to the bank with your application. In addition to security deposits, there are annual fees, setup fees and monthly maintenance fees.

2. Minimum credit limit. The credit limit on your bad credit credit card matches your security deposit. For example, if you pay a $300 security deposit, you receive a $300 credit limit. Lack of cash for a large security deposit can limit your purchasing power, wherein you’re unable to use your credit card when expensive emergencies crop-up.

3. Higher interest rates. The interest rate on bad credit credit cards are higher than other types of credit cards – as high as 25% or 30%. Bad credit applicants tend to have a higher default rate and poor repayment habits, which triggers higher fees. But even if you credit card company charges a high finance rate, you can avoid this fee by paying your balances in full each month. Charge only what you can afford to pay each month.

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