It is pretty difficult to get by in the modern world without having a credit card, but sometimes we wish we had none. At times, paying our bill can be a real challenge, and usually it is these plastic cards that are the root of our financial woes. But if that is the case, why do some card issuers grant unsecured credit cards for people with bad credit? Surely, this is just asking for trouble.
Issuers have to keep issuing card to keep profits up, and with so many people suffering from low credit scores, a market for credit cards designed for the bad credit consumer has sprung up. And in any case, getting card approval is a viable way for a consumer to rebuild their credit reputation.
But, there are clear criteria to meet before anyone can hope to get the thumbs up on their application. What is more, significant compromises associated with unsecured credit cards also have to be made, with interest rates and charges usually higher than usual.
Considering the Downside
It is only to be expected that unsecured credit cards for people with bad credit would come with terms that are far from ideal. Card issuers are aware of the risks involved in putting credit cards in the hands of consumers in tight financial situations. Basic steps are to increase interest and lower credit limits.
Often, the cost of getting card approval when bad credit is such a major factor does seem rather debilitating. For example, typical introductory offers, like a 0% APR and the first year annual fee, are both dropped. Sometimes, benefits like purchase points are also affected, while the interest rate can become extremely high, with some cards charging as much as 23%.
This certainly does mean that unsecured credit cards are expensive, but card issuers will also point to the fact that disciplined use of the cards will see the benefits return over time.
Beating the Charges
Of course, there are ways around the high interest rates associated with unsecured credit cards for people with bad credit. The most practical one is to prepay the credit sum, thus changing its status to a secured credit card. But there are clear benefits to this kind of move.
First and foremost, with the credit card prepaid, it means that the interest rate charged falls significantly. By all accounts, the card becomes a debit card, since the limit is set by the amount of money offered in prepayment - put down ,000 and the limit is ,000. The chances of getting card approval, however, are made extremely good.
Once a card is issued, then it gets the bad credit borrower back onboard, providing them with the chance to get their credit rating in order. However, prepayment is not always necessary, and if a low limit unsecured credit card is acceptable then it can work in the long run too.
Getting the Best Possible Terms
There is little point in claiming that excellent terms are available online, but certainly there are better terms to be had there than from banks and traditional institutions. Getting the best terms on unsecured credit cards for people with bad credit means spending some time searching, and accepting compromises.
Remember, that even a half-percentage point in interest can result in good savings, while a disciplined attitude towards spending means interest can be kept low anyway. So, getting card approval does not have to be seen negatively.
And in the long-run, keeping on top of a small credit card debt, still results in improved credit scores. And with improved scores translating to better loan terms, the investment in even a small unsecured credit card is worth it.