What to Expect When You Get a Credit Card with Bad Credit

If you want to be approved for credit fairly easily, one of your best options is to consider a credit card. Credit card requirements are notoriously easy to meet, and even those with poor credit can often be approved for a credit card.

However, if you do have poor credit, and you have a credit card, you will have to deal with terms that may not be exactly to your liking. If you have poor credit, you won’t have access to the best rates or terms. Here are some of the things that you can expect if you get a credit card with less than good credit:

Higher Interest Rate

For the most part, if you have fair credit, you are going to see a higher interest rate. Only those with excellent credit get the best interest rates. This is because they are seen as a lower risk. If you have good credit, that is an indication that you can handle your debt levels, and that you make payments on time and in full. A bad credit score indicates that you might not be as reliable, and the credit card issuer makes up the difference by charging a higher interest rate.

Subprime Credit Card

Those with bad credit, though, might not be able to get what is called a “prime” credit card. Instead of seeing a lower interest rate, those with bad credit might see a much higher rate — and may be forced into getting a subprime credit card. Some of the characteristics of a subprime credit card include:

  • Various fees: Subprime credit cards are notorious for their fees. There is usually an annual fee, and you often have to pay an initial fee as well.
  • Lower credit limit: While your not so great credit score will result in a lower credit limit for a prime credit card, the subprime credit card takes it to a new level. If you have especially bad credit, you might only be able to get a credit limit of $300 to $500. Once the fees are charged to your card, it’s very possible that you actually start out with only $100 to $250 in available credit.
  • Higher rates and penalties: As you might expect from a subprime credit card, you will face much higher rates and penalties for your subprime credit card.
  • Unfavorable view by credit scoring agencies: When your credit card is subprime, that impacts your credit score further, no matter how desperately you are trying to pay down debt and improve your credit score. The types of accounts you have matters, and that means that a subprime card could slow your efforts to improve your score.

However, if you can’t get any credit card but a subprime card, that might be your best option. You do need to build credit, and a subprime card can help with that.

Secured Credit Card

You might also be limited in another way when you have poor credit. You might have to get a secured credit card. With a secured credit card, you are required to have money held in an account to serve as collateral. If you can’t get an unsecured credit card, you should consider a secured card. While the interest rate is often higher, and there are plenty of fees, it can still help you rebuild your credit.

Make regular payments on your secured card, and after six to 12 months, you can request that it be converted to an unsecured card. Chances are that it will still be subprime, but it’s still a step up. When you have improved your credit score still further, you can begin applying for better credit cards.

Bottom Line

When you have poor credit, your choices are limited when it comes to a number of financial products and services. You need to consider your options carefully. If your credit is especially bad, you might even have no choice but to apply for a secured credit card. Think about likely outcomes, and what you might be approved for. Grit your teeth and pay the fees and try to avoid carrying a balance so that you don’t end up being subject to the high interest. Try to take action to improve your credit so that you can get a better credit card as quickly as possible.

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Comments

  1. says

    Oh man I am soooo happy those days are long long behind us, today my worries about high fees come from MF fees than CC fees

  2. says

    Nice tips.. I got some useful information by reading your article..Thanks.

  3. says

    Great info! Many people fell into the sub-prime category as a result of the bad economy recently.

  4. says

    Getting a credit card when your credit’s down isn’t always a bad idea. While some companies will try to hook you up with high-interest and/or sub-prime credit cards, know that these aren’t your only options to obtain credit and nurse your score back to health.

    High-interest rate cards are obviously a bad idea – you’ll end up in bigger debt if you fail to make the necessary payments – as are sub-prime credit cards. The best choice for the debt-ridden, bad-credit consumer is usually the secured credit card.

    You may have to put up some money as collateral for the credit you’re about to get – you are, after all, a high-risk borrower – but secured credit is one of the safest ways to rebuild your rating. Of course, you’;; have to ensure that you pay off as much of your bill as possible, and on time. After being a “good” borrower, chances are decent that you’ll be able to raise your score and apply for mainstream credit cards after some time.
    Here’s a bit more info about secured credit cards, as well as prepaid credit:

    http://www.solvingdebt.ca/blog/prepaid-credit-cards-vs-secured-credit-cards

    Good luck!
    Rob

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