Secured Cards Can Help Rebuild Bad Credit
There is a wide variety of options for acquiring credit cards for people with bad or less than desirable credit ratings. However, the terms can vary considerably, so it is certainly advisable to perform an adequate amount of homework prior to applying so as not to incur exorbitant fees for a card that yields little or no benefits for the consumer trying to re-establish a better credit rating.
Usually the biggest mistake people make when they do manage to acquire a card is having to pay for fees and interest rates that are so high that the ‘cost of credit’ is far beyond reasonable. While the rates and fee structuring has improved considerably as a result of recent legislation, which has attempted to remove or eliminate the most burdensome offerings, there are still situations that bear close and careful scrutiny.
The first element in searching for a good or acceptable credit card offer is the bank or issuing company itself. Certain banks or companies are apt to target people with poor credit ratings, and offer an array of different cards with an equal amount of different interest rates and fees tacked on. It is important to know which bank or institution a consumer is doing business with, and often it is advisable to work with one that they know well and is in their local neighborhood, such as a credit union, which generally offer far better terms.
Make sure the disclosures, terms and conditions are spelled out and are easily accessible without searching through tedious amounts of ‘fine print’, or if the details are not made available until after the application is submitted. If the terms are not clear, available or understandable, then it is a good bet that the card issuer is not operating with the best of intentions or tactics. It is far better to be cautious in the beginning, than foolish in the end when the consumer has committed to an offer that was better left ignored.
Many credit card offers for people with bad credit often have a bewildering range of fees, such as account opening fees, annual fees, monthly maintenance fees, and so on. Often some of these costs are tacked on to the initial balance before the consumer even receives the card, and subtracted from the minimum credit line offered. Check each of these items carefully by totaling them all up to assess the real benefit of using the card, especially when determining the what the monthly payment will be.
Determine what the annual percentage rate, or APR, will be on purchases made with the card. Consumers with bad credit scores are usually faced with very high interest rates – often as high as 49.99% or higher. If a balance is kept on the account, the interest will accumulate quickly, which translates to a very steep price to pay for owning the card.
The most important aspect of the research is whether or not the specific type of card will improve the consumer’s credit rating. Though the options are indeed limited, the two main types of credit cards available to people with bad credit scores are prepaid cards and secured credit cards. Prepaid cards are the type that requires a person to ‘prepay’ funds into the account before the card can be used, drawing down the available amount over a period of time, much like a debit card or checking account. With a secured credit card, the difference is that a deposited amount of funds is made to ‘secure’ a line of credit. The primary difference between these two types is that for the secured type of credit card, the payment history, such as the timeliness of each payment and remaining balances owed, is usually reported to the credit reporting bureaus, such as Equifax or TransUnion. This becomes the most important factor in enabling the consumer with a poor credit rating to build or re-establish credit.
