If your credit is damaged and you ask for a no down payment card, a lender will assume you are requesting information about sub-prime credit cards.
Media coverage of the housing crisis has led the public into thinking of “sub-prime” as a bad thing or a bad loan. This is not true though in the house market the term sub-prime has lost its shine.
Sub-prime can be defined as “less than prime”. If you have good credit and a history of good credit, you can enter the prime credit market secure in the knowledge you will qualify for almost any credit card you apply for. You are operating in the prime credit market.
Today the number of consumers that cannot qualify for prime credit continue to rise. Three full years of a struggling economy and an increasing unemployment rate have damaged the credit of many citizens who have watched their high credit score drop as loss of income took its toll on their financial health.
The calls for no down payment credit cards for bad debt have increased recently and lenders have begun to respond by widening their options for sub-prime credit cards.
Once a product available only from small, low end lending banks, no down payment credit cards for bad debt can now be found even on the websites of major financial institutions such as Citi and Chase.
Advantages
A no down payment card can be useful in rebuilding credit damaged by payment defaults, late payments, bankruptcy or foreclosure. If you have suffered from financial setbacks the option of a prepaid credit card may not be attractive to you.
It’s true you can obtain a prepaid card and use it as easily as any other major card. The problem is the prepaid requirements amounts to a down payment that you may not be able to afford.
Lenders who offer no down payment credit cards for bad credit will often respond to an application for a new account by giving you the options open to you. If your bad credit is manageable under their guidelines, you may receive a new credit card.
If your bad credit is over a long period of time or appears to be a result of bad money management, the lender may decline your application but may offer the option of a prepaid credit card.
Be careful to choose a lender that reports monthly to the three major credit bureaus. This will ensure that using this new account will aid you in repairing your bad credit and improving your three digit credit score.
Disadvantages
If you are approved for a no down payment card, you will be paying a premium in fees and interest rate for this account. This is a fair tradeoff and a standard policy in the sub-prime lending marketplace.
If you have bad credit, you are high risk in the eyes of a lender. The lender may be willing to give you another chance by granting your application for a no down payment credit card. That lender will increase his fees to make it worth his while to take the risk of providing you with credit.
If you have bad credit, there is no point in spending time looking at offers from major banks for rewards credit cards and low interest cards. You will not quality for those offers until your bad credit has been corrected.
When you accept a no down payment card, you will be charged an annual fee although it may be waived for the first year by some lenders.
The interest rate will be at the high end of what the laws allow. Should you make one late payment, the penalty fee will be applied which will double the interest rate on the card.
The spending limit on a sub-prime credit card will be low but might be raised after you have used the account responsibility for some time.
The most common credit lines for such accounts are only $300-500.
You may be charged an activation fee by some lenders though these fees are decreasing as competition among big banks increases in issuing no down payment credit cards for bad credit.
Summary
If you have bad credit your choices are limited if you need a new credit card. You can choose a secured credit card where you provide a substantial amount of money to be held as a guarantee of payment.
The best option (if you qualify) is to obtain a no down payment card. The fees and interest rate may be high but you will not need to fund the card in advance. Responsible use of the new account will rebuild your credit file.
