If you have bad credit and are looking for a credit card, it pays to do some careful research first to make sure that you really get what you want. Credit cards for people with poor credit are often more expensive, because issuers charge higher fees to protect themselves against the increased risk of default. Many subprime credit cards also come with very low credit limits, often as low as $250.
The card that is best for you depends on your goals, so first determine what your needs are. If you need a card mainly for convenience, e.g. to make online purchases, book hotel rooms, rent a car, or make flight reservations, your least costly option will likely be a prepaid credit card. These are cards that you prepay money to, and like a checking account, you simply draw down the amount over time. There are many prepaid credit cards available, and the fees they charge vary quite a bit, so compare prepaid credit card offers to find the one with the lowest fees.
On the other hand, if your goal is to improve your credit, you may opt for an unsecured credit card for people with bad credit or for a secured credit card. Both these types of cards come with tricky rules and fees, so it’s important to read up on the terms before you apply. Otherwise, you could end up paying a lot for something you really didn’t want.
Here are eight questions to ask before applying for a bad credit credit card.
1. Which bank is issuing the card? There are many credit card offers for people with bad credit, but many of these are issued by the same bank. First Premier Bank, for example, issues not just the First Premier Master/Visa Card, but also cards like the Centennial and Aventium Gold MasterCard. The terms of cards issued from the same bank are often very similar, so knowing that saves you some time reading through the terms for every single credit card offer.
2. Is the credit card secured or unsecured? With secured credit cards, you deposit an amount in a bank account before you get the card, and this amount counts as security against your credit line. With unsecured cards, you get a low line of credit without depositing money first, typically around $250-$500. The advantage of secured cards is that you can get a higher credit line, if you deposit more money as security. Also, the fees may in some cases be lower. The disadvantage, of course, is that you have to come up with the money for the security deposit.
3. Are the terms clearly stated? If you have to look a long time on the online credit card application to find the disclosure of terms and fees, it’s usually a sign that the card issuer does not use above-board business tactics. Stay away from this type of card issuer, or you will likely live to regret it.
4. What are the fees? To determine the real cost of the credit card offer, make a list of all the fees, including opening fees, annual fees, monthly maintenance fees, and so on. Add them all up, and, if they are assessed before the card is used for the first time, subtract them from the minimum credit line offered. This will give you an estimate of the amount of credit you are likely to have available when you receive the card. Also look at other fees, such as late payment fees, over-the-limit fees, and fees charged for reviewing your account for a credit limit increase.
5. What is the APR on purchases? The APR, or annual percentage rate, is the interest rate charged on the purchases made to your card. A typical range will be from 9.99% to as high as 24.99%. If you’ll be carrying a balance on the card, the card with the lower APR may be the best choice, depending on the other fees charged.
6. Is there a grace period? The grace period is an interest free period. If you pay your balance in full each month, credit cards typically offer about a 21-day period before they begin to charge interest on the new purchases. Some subprime credit cards don’t have a grace period, in which case interest charges accrue from the day you make the purchase. For secured credit cards without a grace period, you’re charging against money you have deposited, so you’re essentially paying interest to the bank for lending you your own money. If this sounds like a bad deal, it’s because it is.
7. Does the card issuer report every month to the credit bureaus? If your goal is to improve your credit score, make sure to pick a card that clearly states that it reports every month to the credit rating agencies. This will ensure that you credit score increases fast, as long of course, as you make your payments on time.
8. Is the cost worth it? Once you know exactly what it will cost you to get the card, you can decide if it’s worth the cost. For the most part, with unsecured and secured credit cards, you pay a high cost in proportion to the credit limit you actually get. If your goal is to improve your credit score, you may decide that the cost is worth it. If not, again, you’re better off saving yourself some money by getting a debit card or a prepaid credit card.
