Choosing Credit Cards for Bad Credit

With the downturn in the economy and the current revival, there are many people who fell on hard times that now want to rebuild their credit score. From layoffs to hours being cut, many people had to choose between paying debts or keeping the lights on and their families fed. For those who have rebounded from this type of predicament, part of that rebound is to fix their credit. Paying off the owed debts will help but for many their best choice is credit cards for bad credit. Getting a credit card that shows current payment history for months is the best thing that anyone with bad credit can do to truly fix their credit. Instead of just showing debts that are paid off and the files closed, active credit boosts one’s credit score and can do so quite quickly.

What to Look For 

There are many options when it comes to credit cards for bad credit and not all of them are created equally. Many of them will have higher fees, higher interest rates and lower credit limits compared to standard credit cards but that does not mean the person looking to rebuild their credit needs to end up being ripped off by credit card companies that specialize in bad credit cases. For those in the market for a credit card designed to help rebuild one’s credit rating, reading the disclosure information is more important than for any other credit card consumer. These three things should be noted and considered:

• Interest Rate

While the person with bad credit should expect to pay more in interest compared to someone with better credit, the interest rate does not need to be extravagant. There are companies that are unabashed in charging up to almost sixty percent interest each month for their credit cards for bad credit. That means a balance of two hundred dollars carried from one month to the next will accrue enough interest in one month to go over the card’s limit. Couple this with fees that are placed as part of the balance and it is very easy to end up with a credit card that has no credit and can actually make one’s bad credit situation worse.

Instead, shop around and find a card with a more reasonable interest rate. There are companies that want the business and truly want to help people fix their bad credit. Interest rates of twenty to thirty percent should be expected and are the normal interest rate for those with bad credit. Even those with truly horrible credit should never be forced to pay over about thirty percent interest.

• Upfront Fees

Another place where many credit card companies get people is with big upfront fees for their credit cards for bad credit. A small, refundable fee is acceptable for applying because there is a little more time and consideration from a bank analyst needed when someone with bad credit is applying for a credit card but that should be it. Some companies charge up to nearly 100 dollars for an account initiation fee that has to be paid up front before the credit card issuer will activate the account. On top of this, some companies will also charge an annual fee that is added onto the account, taking away from the account’s limit immediately. If this is combined with extravagant interest rates, it can become an immediately bad situation for the person with bad credit.

Again, shopping around for a credit card that has fair up front fees is important, especially when looking for a credit card when there is bad credit involved. A small fee, again, is acceptable to get things started but the company should at least be willing to waive the first year’s annual fee or even separate out the fee into small monthly payments.

• Other Fees, Restrictions and Limitations

Another place where credit cards for bad credit differ is in the other fees that are assessed as well as restrictions and limitations placed on the card that may or may not be in the fine print on the credit card disclosure. For example, someone with good credit wants to make a payment by phone that gets processed that day to prevent a late payment from going on their record means they call in and make the payment, typically with no fee whatsoever. With some company’s credit cards for bad credit offerings this same service can cost five, ten or even fifteen dollars. These companies also tend to charge some of the highest late fees in the industry as well as incredibly high interest rates if even a single payment is missed.

On top of these excessive fees, credit cards for bad credit sometimes have restrictions placed on them. For instance, a typical credit card will allow the card holder to withdraw quite a bit of the card’s credit limit as a cash advance wheras many bad credit specific cards will restrict the cash withdrawals to just ten percent of the credit limit. These restrictions are to mitigate loss on the credit card company’s part but shopping around can find a better choice if that is a priority for the card holder.

An Alternative Solution: Secured Credit Cards

After all the fees and the excessive interest, many people with bad credit would find they would be in a much better situation with a secured credit card instead. With a secured credit card, the person with the card decides on the credit limit and sends in funds to cover that limit. The reporting to the credit agencies still happens and they still have full access to the credit card network and all of its perks, just with a secured line of credit instead. If they wish to raise the limit, they send in more funds to raise the limit. With many of these cards, the credit card issuer will actually keep the same terms of the secure card after a year of on time payments and mail back the security funds to the card holder, turning the card into an unsecured line of credit instead.