Bad credit credit cards can be…bad. When applying for one, beware of offers that require payment before acceptance.
If one has bad credit but needs a credit card—to buy airline tickets, make hotel reservations, rent a car, shop online, etc—there are options. With a secured or prepaid credit card, a deposit is made to the account and a credit line equal to the amount is available. Since it’s prepaid, the credit is not really credit. But the cardholder is given flexibility to use the card instead of paying cash, as well as make reservations or provide security deposits.
There are also credit cards specifically for people with bad credit. But before accepting one of these bad credit credit cards, the applicant should understand the terms and conditions.
The bad is in the fees
With some bad credit credit cards, there is an acceptance fee and a monthly participation fee. For example, for a $200 line of credit, you could be charged an acceptance fee of $144 and a monthly participation fee of $6, leaving you with a $50 line of credit to start. Basically, the new cardholder receives the card already owing $150. Beware of bad credit credit card issuers that charge you a fee before you accept the card. This is illegal and the Federal Trade Commission has ordered a crackdown on telemarketers offering “guaranteed” credit cards with upfront fees prior to acceptance.
In addition to fees, bad credit credit cards may carry a higher interest rate. Consumers should carefully review the credit card agreement and be sure to understand all the terms and conditions before accepting it. Under the federal Truth in Lending Act, credit card issuers are obligated to provide certain information in all credit card offers they make.
Schumer knows
The Schumer box should appear with every credit card offer. All card issuers are required to have this box–it outlines the fees and rates of cards. The information to be provided must include the APR (annual percentage rate of interest), the different rates that are charged (purchases, cash advances and balance transfers), as well as all penalty rates and the actions that trigger them. If the interest rate is variable, the information in the Schumer box must explain how the rate is calculated.
Other information in the Schumer box includes finance charges, annual fees, fees for credit insurance, the minimum payment required, how an outstanding balance is calculated, credit limit, the grace period and the name of the company offering the credit, which may not be the same as the company doing the marketing.
The best use of a bad credit credit card is to help someone rebuild their credit. To do so, the cardholder’s history with the card–such as amount charged and payments made–should be regularly reported to the three major national credit bureaus: Equifax, Experion and TransUnion. But in order to repair credit, one must be sure to not to repeat the behavior that causes bad credit.
