Considering the state of the economy over the last few years, it’s no surprise that there has been a vast increase in the number of people suffering financial difficulties that have had an impact on their credit ratings. If you’ve missed payments on a loan or failed to pay a bill, you might well have gained black marks on your credit rating.
This can make it very difficult to be approved for financial products like credit cards, and in these days of online shopping and bill payment, this can make life trickier than it needs to be. Given this, many people wonder whether applying for one of the various credit cards specifically marketed to people with bad credit is a good choice to make.
At first glance, these cards seem like a great idea if you need a credit card but can’t get approved for a mainstream product, but look a little closer and a few major problems show up.
The most obvious one is the cost. These cards almost always have a higher than average APR, sometimes a lot higher. This means that you’ll be paying through the nose for any debt you carry on your card.
Some cards like the Capital One Classic or the Barclaycard Initial, both aimed at customers with little or no credit rating, have APRs that while high are not completely off the scale. Other cards have APRs reaching the frankly ridiculous levels of 69% – it’s hard to see how this kind of rate can be justified.
A credit card aimed at people with bad credit is likely to have a very small credit limit, especially when the account is first opened. While this might not be a problem for day to day living, it does tend to limit the size of online purchases you can make, for example.
One way around this may be load funds on to your card in advance, so your account is in credit before making a purchase. However, not all cards allow this – some limit your transaction size to your credit limit, no matter how much funds you actually have on the account. Your credit limit will generally be increased as the months go by though, as you gain the trust of the card issuer.
Very few ‘bad credit’ credit cards are going to come with any added extras such as 0% balance transfer periods or rewards. This is just a fact of life – these incentives are only going to be available to prime customers who the card issuers are competing to woo.
So, with the above in mind, are these cards a good option? So long as you are aware of the downsides and can work around them, they’re worth considering. For instance, you can sidestep the high APRs by clearing your balance in full each month, so avoiding interest altogether. Using the cards as a convenient way of paying for things rather than a way of borrowing money is the key here.
Also, another benefit is that by taking out a credit card and conducting your account responsibly, you will over time build up a better credit rating that may allow you to get approved in the future for a cheaper card with more features and a higher credit limit.
So, if you need a credit card but have a less than stellar credit rating, then applying for one of these cards can be a good short term solution that can improve your standing in the long term as well.