 Consumers
often receive credit card offers in the mail, but if they have bad credit,
they quickly realize that many of those offers are out of their reach.
According to the Fair Isaac Corporation, the firm that created the FICO
scoring model, credit scores range from 300-850. The lower your credit
score, the harder it will be for you to qualify for a credit card. If you
have a low FICO score at the moment, don't fret. There are credit card
options for those with bad credit, you just have to know what they are.
High Interest Credit Cards
Credit cards with low interest rates and 0 percent introductory offers are
usually reserved for consumers who have high credit scores. If you have bad
credit, you will not receive such offers. The truth is, there are millions
of consumers with bad credit who need access to a credit card. In response
to this need, an entire industry has surfaced which caters to consumers with
bad credit. That's the good news. The bad news is that these cards usually
carry a high interest rate. The 2009 Credit Card Accountability,
Responsibility and Disclosure Act (C.A.R.D.) provides consumer protection
for credit card holders by restricting retroactive interest rate hikes, but
it doesn't restrict the interest rate the banks or lenders are allowed to
charge. In other words, the rate could be 2 percent or 50 percent. As of May
2010, the Orchard Bank MasterCard for bad credit has an annual fee of up to
$74 the first year and an annual percentage rate (APR) of up to 28 percent,
and First Premier Bank has a credit card with a 79.9% APR. While these are
high numbers, keep in mind that when you have bad credit, the purpose of a
credit card is to have access to a small amount of credit, pay the bill on
time each month and allow this new credit history to increase your
eligibility for a more mainstream card with lower interest and smaller fees.
It's a means to an end. View it as such and utilize that opportunity to take
a financial step forward.
Secured Credit Cards
A secured credit card is issued based on the deposit amount placed with a
bank. Credit lines usually range from a low of $200 to a high of $5,000,
except Bank of America's Secured MasterCard, which has an upper limit of
$10,000. The credit line will equal the amount on deposit. This is different
from an unsecured credit card where the bank determines the credit limit
based on your credit. Unlike high interest rate cards, secured credit cards
usually have lower interest rates. Some cards, like the HSBC Secured Visa,
will waive the annual fee for the first two years. Depending on the bank,
deposits are placed in a savings account or a certificate of deposit. The
deposits might or might not earn interest. Check the terms of agreement to
find out for certain. If you use a secured credit card wisely, it will
improve your credit over time and open doors to unsecured cards down the
road.
Prepaid Credit Cards
A prepaid credit card is a reloadable credit card that allows you to add
money to the card as you need it. It has either a MasterCard or Visa logo,
which gives you the opportunity to use it for online purchases, paying bills
and ATM withdrawals. It's not attached to a checking account like a debit
card, so you won't incur overdraft fees because you only can spend what's on
the card. Similar to a secured card, your spending limit is based on
whatever funds are added to the card. Some secured credit cards, like the
Secured MasterCard by Citibank, are secured with a certificate of deposit,
which means you cannot increase the credit limit once the account has been
opened. With a prepaid credit card, you can change the credit limit any time
by adding more funds. Some cards charge a monthly fee. Others, like Bank
Freedom Prepaid MasterCard, don't. Read the terms and conditions carefully
before signing up. Also, certain card issuers refer to prepaid credit cards
as prepaid debit cards. The two terms mean the same thing, and are not to be
confused with a traditional debit card, which is issued by the bank after
opening a checking or savings account.
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