Options for People with Bad Credit

Credit Card Options for People With Bad Credit
  Consumers often receive credit card offers in the mail, but if they have bad credit, they quickly realize that many of those offers are out of their reach. According to the Fair Isaac Corporation, the firm that created the FICO scoring model, credit scores range from 300-850. The lower your credit score, the harder it will be for you to qualify for a credit card. If you have a low FICO score at the moment, don’t fret. There are credit card options for those with bad credit, you just have to know what they are.

High Interest Credit Cards

Credit cards with low interest rates and 0 percent introductory offers are usually reserved for consumers who have high credit scores. If you have bad credit, you will not receive such offers. The truth is, there are millions of consumers with bad credit who need access to a credit card. In response to this need, an entire industry has surfaced which caters to consumers with bad credit. That’s the good news. The bad news is that these cards usually carry a high interest rate. The 2009 Credit Card Accountability, Responsibility and Disclosure Act (C.A.R.D.) provides consumer protection for credit card holders by restricting retroactive interest rate hikes, but it doesn’t restrict the interest rate the banks or lenders are allowed to charge. In other words, the rate could be 2 percent or 50 percent. As of May 2010, the Orchard Bank MasterCard for bad credit has an annual fee of up to $74 the first year and an annual percentage rate (APR) of up to 28 percent, and First Premier Bank has a credit card with a 79.9% APR. While these are high numbers, keep in mind that when you have bad credit, the purpose of a credit card is to have access to a small amount of credit, pay the bill on time each month and allow this new credit history to increase your eligibility for a more mainstream card with lower interest and smaller fees. It’s a means to an end. View it as such and utilize that opportunity to take a financial step forward.

Secured Credit Cards A secured credit card is issued based on the deposit amount placed with a bank. Credit lines usually range from a low of $200 to a high of $5,000, except Bank of America’s Secured MasterCard, which has an upper limit of $10,000. The credit line will equal the amount on deposit. This is different from an unsecured credit card where the bank determines the credit limit based on your credit. Unlike high interest rate cards, secured credit cards usually have lower interest rates. Some cards, like the HSBC Secured Visa, will waive the annual fee for the first two years. Depending on the bank, deposits are placed in a savings account or a certificate of deposit. The deposits might or might not earn interest. Check the terms of agreement to find out for certain. If you use a secured credit card wisely, it will improve your credit over time and open doors to unsecured cards down the road.

Prepaid Credit Cards A prepaid credit card is a reloadable credit card that allows you to add money to the card as you need it. It has either a MasterCard or Visa logo, which gives you the opportunity to use it for online purchases, paying bills and ATM withdrawals. It’s not attached to a checking account like a debit card, so you won’t incur overdraft fees because you only can spend what’s on the card. Similar to a secured card, your spending limit is based on whatever funds are added to the card. Some secured credit cards, like the Secured MasterCard by Citibank, are secured with a certificate of deposit, which means you cannot increase the credit limit once the account has been opened. With a prepaid credit card, you can change the credit limit any time by adding more funds. Some cards charge a monthly fee. Others, like Bank Freedom Prepaid MasterCard, don’t. Read the terms and conditions carefully before signing up. Also, certain card issuers refer to prepaid credit cards as prepaid debit cards. The two terms mean the same thing, and are not to be confused with a traditional debit card, which is issued by the bank after opening a checking or savings account.