"Bad Credit" Credit Cards:
How You Can Avoid High Fees
Individuals with problematic credit histories often suffer
unfairly from high mortgage, insurance, and car loan rates. On
top of that, they have difficulty getting approved for credit
cards. The whole situation can get extremely frustrating.
Frequently, I get emails from consumers wondering what they can
do to rebuild their credit. The first thing I tell them is to
get a credit card designed for people with bad credit. The
second thing I tell them is written in bold: READ THE FINE
PRINT.
There are only a limited number of credit cards for individuals
with bad credit. At first glance, many look the same. They all
help build and rebuild your credit by reporting to the major
credit bureaus on a monthly basis. They all provide you with
the Visa or Mastercard you need to make many purchases. And
they are all necessary evils that can save you thousands of
dollars in mortgage and car loan rates in the future. However,
you must read the fine print before applying for one of these
credit cards, as they often charge high yearly fees, set-up
fees, and even monthly fees. Here, I will examine a few
examples of charges current “bad credit” credit cards bury in
the fine print. Of the three major cards I will examine, only
one stands out as consumer-friendly.
“Bad Credit” Credit Card #1: This credit card charges a very
low interest rate for an unsecured credit card. However, your
first fine print glimpse reveals that there is a one time setup
fee of $29. Not too bad. So far, since the next charge is a one
time fee of $95. So far, we’re up to $124 in expenses. That’s
got to be it, right? No. Add in another $48 for the annual fee
and $6 per month in account maintenance fees. That’s brings the
cost of your new credit card to $244 the first year, and $120
each additional year. This is no small change, and a card such
as this should be considered only if you cannot be accepted for
a better unsecured credit card for bad credit.
“Bad Credit” Credit Card #2: This credit card charges a very
high interest rate for an unsecured credit card. This can’t be
good. But the setup fee is only $29. Maybe this card isn’t so
bad. There is that pesky monthly maintenance fee of $6.50 per
month which brings the cost of this unsecured credit card to
$107. Maybe we’ve found a bargain. Not quite. The annual fee is
a whopping $150. Yes, $150 every year. That not only brings the
initial cost up to $257, but you will also pay $228 a year just
to maintain the credit card. There has to be a better offer.
“Bad Credit” Credit Card #3: This credit card is available as
both a secured and unsecured credit card, based on the issuer’s
review of your credit history. The interest rate is average,
even competitive. Now, the fine print reveals that there is a
one time setup fee. However, based on your credit, this fee can
be as low as $0 or as high as $49. So far so good, especially if
your credit is not that bad. But, there must be a huge annual
fee. Not exactly. The annual fee for a secured credit card is
only $35, and for an unsecured credit card, this fee can be as
low as $39 or up to $79. So far, the cost of this card ranges
from $35 to $128. Now its time for the monthly maintance fee.
This one has to be huge. Or not. Its $0. That means the most
you could possible be charged to obtain this credit card is
$128, about half of what competing cards are charging.
Clearly, there are substantial difference between “bad credit”
credit cards. Of the three offers we have examined, only one
doesn’t take you to the cleaners. In fact, “bad credit” credit
card #3 provides great value. All positive changes to your
credit history and credit score will translate into lower loan
rates, lower credit card interest rates, lower insurance rates,
and ultimately, thousands of dollars in savings. The path to
rebuilding credit has its costs, but in the long term,
rebuilding your credit with a “bad credit” credit card is the
fastest and most cost-efficient way to correct the often
unfortunate circumstances that have damaged your credit in the
first place.