Understanding a Credit Card for Bad Credit

A credit card for bad credit is widely available and if you thought that you can’t actually apply for a credit card with bad credit, I can tell you immediately that you are completely wrong. It is easier than you thought and this article will explain why.

However, you are probably wondering why the companies are actually offering bad credit card applications at all? Well, simply because high risk card holders are charged higher interest rates and are lucrative cash cows.

So the credit card provider stands to make more profit form a higher risk account than from a card holder with a perfect payment history. This is because perfect credit history is normally rewarded by low interest rates. Can you see how this works now?

Watch Out For The High Rates!

These types of cards are known by many different names, depending on the provider, such as “credit builder” cards, “classic” cards or “standard” cards. However, there are several important points you need to know and remember. First, as we just mentioned, credit cards aimed at bad credit applicants will undoubtedly come with high interest rates.

How high exactly will depend on your personal circumstances, but dont be surprised if youre offered an interest rate that is double that of what youve had in the past. Secondly, remember that these cards will have an annual fee attached to them.

Again this can vary, but $50 isnt unusual. Thirdly, dont be surprised if your opening credit
card limit
is very low. This is to limit the risk of you racking up a large debt and then not paying it back! But dont worry too much, as this will soon begin to increase once you’ve proven you can manage your account well. After a while you may even find your interest rate will drop too. Just be sure to pay your bill on time and dont go over your limit!

A fantastically effective technique to repair and strengthen your credit rating using the credit card for bad credit is to make one of your regular small purchases on your card each month. Something like a lunch is perfect. Then clear the small balance in full, so you avoid any interest. This will reflect on your credit file as perfect account management each month, regardless of the purchase cost!

Low Risk Alternatives

There is an alternative to the credit card for bad credit. A prepaid credit card allow you the convenience and freedom of a credit card use, but without the risk of getting further into debt and without the risk of damage to your credit file. A prepaid credit card work just like a normal credit card, but you deposit money into the credit account before you can use it. Once the balance reaches zero, you have to make another deposit to continue using your card. This is the best credit card for bad credit and most optimal as well.