Secured credit cards are one of the best ways to improve your credit, but they require a security deposit. This can be a major impediment for people who are getting back on their feet after a long period of unemployment, illness or some sort of financial hardship.
But in our society you need a credit card or debt card just to do normal day to day financial transactions. What can you do if you don’t have the security deposit for a secured credit card or a checking account for a debit card?
You can apply for a bad credit unsecured credit card. These cards are issued by subprime banks to help credit challenged consumers.
Bad credit unsecured credit cards obviously do not require a security deposit. This can be a welcome feature for a lot of people. And since they were created for people who need to rebuild their credit score, they will approve some pretty low credit scores. A few years ago, there were a few that didn’t even check your credit, but when the downturn in the economy hit in 2008, most of these companies went under.
So expect a credit check, so before you apply, pull your own credit report. It won’t effect your credit score, if there are any errors, fix them before you apply. You can find companies that will give you all 3 credit bureau scores here. You need to look at all 3 because your score can differ a lot from credit bureau to credit bureau.
If you can’t fix all the errors on your credit report before you need to apply for your credit card, write a letter of explanation. Let them know what happened and what you have been doing to improve your credit.
In my FT job, I help clients obtain business loans. I’m constantly surprised when someone with bad credit wants the same interest rate as our good credit clients. Its just not going to happen. Because of the risk involved in lending someone with a lower score money, the banks will impose a higher interest rate. There is no way of getting around that. Some secured credit cards have low APRs but again, they require a security deposit and since the banks have that deposit, they feel their money is safe. If you fail to pay, they will just take what you owe out of the security deposit.
Aside from the interest rate, the fees can prove to be just as costly. For example, annual fees can go from $50 to $95. Some unsecured credit cards for bad credit also charge a monthly maintenance fee ($3 to $15) aside from the yearly cost. Processing fees and applications can be anywhere from $50 to several $100s of dollars. They put these fees on your credit card, so lets say you get approved for $500. You may get the card, but it will already have $395 on it that needs to be paid – those are the fees.
Add up all the fees and it can get really costly. Despite not paying the security cash deposit, you may still end up spending at least $300+ or more in a year on fees and penalty charges. Just imagine incurring all these fees on your monthly bill. On top of that, you have to pay for the things you charge to the card.
If you decide to apply for an unsecured credit card for bad credit, you should be willing to spend a lot of time evaluating and comparing your options. Read the fine print and make sure that all the fees have been clearly stipulated and disclosed in the Agreement.
Check Your Credit Regularly
Will your interest rate ever get lower after a year of timely payments? Probably not. But if you have been making your payments on time and also opened a few other types of credit lines. It maybe time for you to apply for a new credit card with a lower interest rate.
Monitor your credit scores and remember the banks like to see a nice mixture of credit types. Go to your credit union and take out a small personal loan, save some money and open a secured credit card. Show banks that you are no longer a credit risk.
Bad credit unsecured credit cards can be a tool for rebuilding poor credit through regular use and consistent, timely payments. However, you should make sure that your payments will be accurately reported to the three major credit bureaus (Equifax, Experian, TransUnion). Remember that if your account activities are not being reported, , you will not be able to improve your score.
About the Author
Tara Tiemann is the credit specialist for http://www.go-prepaid.com. Which is a resource site for people who want to live debt free! If you are on a budget, using a Bad Credit Unsecured Cards and merchandise credit cards
can save you big money!