Credit Cards for Bad Credit Risk
People who have bad credit are likely to have a difficult time getting approved for credit cards, because lenders will see them as high credit risks. Yet having and using credit cards is among the best ways to improve a credit rating. Some companies specialize in extending credit cards to people with bad credit. However, be prepared for less-favorable terms than someone with good credit would receive.
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High Interest
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Credit cards for people with bad credit generally charge much higher interest rates than those for people with good or even fair credit. For instance, Orchard Bank, which specializes in credit cards for people with no credit, little credit and bad credit, offers cards with variable purchase annual percentage rates, or APRs, of 14.90 to 24.90 percent.
Unlike cards with fixed APRs, cards with variable purchase APRs can change from one day to the next. Commonly, such cards' APRs are tied to the Federal Reserve's prime rate, so each time that rate changes, so will your card's APR.
Annual Fees
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Most credit cards for people with poor credit come with annual fees that can range from $39 to $79. These fees might be broken down into small monthly payments, or they might appear on the card in their entirety upfront.
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Account Processing Fees
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Many credit cards for people with bad credit also charge various account processing fees. Basically, these are setup fees and maintenance. They can range anywhere from $19 to $50 and might be charged on top of the annual fees on your first credit card statement.
Transaction Fees
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Some cards also charge several types of transaction fees. For instance, First Premier Bank, a popular issuer of credit cards for people with bad credit, charges $5 or 3 percent, whichever is greater, of the amount of a cash advance. It also charges an additional 3 percent of a transaction amount in foreign currency.
Low Credit Limits
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You might be prepared to be hit by fees every which way when applying for credit cards for bad credit. But you should also be prepared for an extremely low credit limit. These credit cards often come with credit limits of just $200 or $300. When you consider all the upfront fees that will be charged, your card will likely be close to maxed out before you ever make a single purchase with it.
However, by paying down your initial balance and using your card responsibly, you can eventually earn increases in you credit line and boost your credit score, so that you can get cards with much more favorable terms.
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References
- Photo Credit credit card image by jimcox40 from Fotolia.com
