Having bad credit no longer means that you cannot get a credit card. Credit cards for those with bad credit are now available from several companies. This may seem like great news, and very well may be. However, it is important to understand how a high risk credit card is different from a standard version.
Credit cards for those with bad credit are offered in two different versions, secured and unsecured. The secured version will require you to open a savings account with the bank offering the card. This money will serve as a collateral of sorts, and will be taken by the credit card issuer if you stop making your payments.
The amount of money you deposit will be your initial credit limit. This may not always be the case, because the longer you keep your account in good standing, the higher your credit limit will be. You may also be able to deposit additional funds in order to raise your credit limit.
Some secured credit card companies will return the money in your savings account to you after a period of time in which you have proved yourself responsible in their eyes. While others will require that this money always be in place in case you default on your payments.
Unsecured cards is the other option of credit cards for those with bad credit. This type of card requires no collateral, and no savings account. This card is issued the same way a standard card is. The difference being that your initial credit limit will be low, and your interest rate will be higher.
Unsecured credit cards are typically issued with a large amount of fees that are accessed immediately. A processing fee, along with yearly fee are taken out immediately. This means that when you get your card, you will have very little available credit, and a nice sized balance already due. The processing fee will be the bulk of this cost, and fortunately, is a one time only fee. Once you pay these fees off, you will have access to your full credit limit.
The interest rate on both secured and unsecured credit cards is one of the biggest drawbacks. It will be up to you to decide if having a credit card is really worth paying interest that can be twenty percent or more. For those that wish to simply begin to rebuild their credit, and do not plan on using the card often, this may be no big deals. Credit rebuilding is the best benefit of high risk credit cards.
High risk credit cards are usually mentioned right alongside with scams. In reality, they are not scams at all. They most often receive this label from individuals that did not take the time to read the terms and conditions. Not understanding just what credit cards for those with bad credit will cost you is a huge mistake. Learn everything you can about this type of card before signing on the dotted line.
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