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The Advantages and Disadvantages of Bad Credit Credit Cards
Bad credit credit cards serve one major purpose and that is to repair your credit when no other credit card is available to you. Before we get too deep into the advantages and disadvantages of these types of cards, let’s look at one other option you always have. Prepaid credit cards work differently to repair credit when you have had arrears. They are also available when you have had bad credit scores and history or currently are in that situation. So you do have at least one other option. See our article on prepaid credit cards for more, because there are certain disadvantages of prepaid cards that will make the cards for bad credit look great if you use them right, but more on that in a bit.
Advantages:
Bad credit credit cards allow you to increase your credit score and repair your history. To do this you must be able to make on time payments and pay the balance in full every month. As long as the credit card has something to report to the agencies, that is good. Your scores will go up.
Your scores will also go up for being awarded the card. A decline on your credit report for cards you can’t qualify for is something you should be concerned about. The point of the credit cards for bad credit is that you should be able to qualify no matter what your credit is, which means you need to stick with these types of cards, if your credit score is poor or below.
The credit limit is usually low to help you avoid racking up debt quickly.
Disadvantages:
Credit cards for people with bad credit have a very high interest rate. Typically it will not be below 25 percent; most often it is around 30 to 35 percent. It just depends on the bank the card will be through.
You also have a credit limit on the card, which means you can use it whenever you want. This use needs control that you might not have. Although the credit limit is going to be lower it can still increase as you carry the card.
The credit card still has the late fees and missed payment fees of the other cards.
Typically with credit cards for bad credit you can expect that they are not going to allow for balance transfer deals. A lot of cards have introductory rates or at least allow for balance transfers on a card. With credit cards for bad credit this can actually go either way, and most often they don’t allow balance transfer introductory deals based on your scores and history. This does not have to be a bad thing though. You want the card to be clear of any debt because you are using it to obtain better scores.
Above we mentioned the interest rate and prepaid cards that don’t have interest rates. If you use the bad credit credit card appropriately you should not be charged interest at any rate. Here is how you would use it. Once a month you purchase a tank of gas. This tank of gas is in your budget therefore you can go home immediately and pay the balance off. First the card reports that you made a payment and that it was on time. This helps you increase your score. The second part of this is that you paid the card off and did not carry a balance. The only way to be charged interest is if you carry a balance on the card for more than 30 days. In other words, if you pay the balance on the statement due date no interest can be charged. |
