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Need a Credit Card but Have Bad Credit?
The Rise of Bad Credit Credit Cards

     People don’t think about their credit score all that often.  That is until your credit score dips down and joins the bad credit group.  That’s when applying for credit, including credit cards, gets tricky and becomes a problem you have to think about. 

But there is hope out there for those with bad credit looking to obtain a new credit card. The first thing that must be considered when looking for a new line of credit is how it will help you to correct the bad credit problems you already have.

     Many major banks now offer credit card programs specifically geared towards borrowers with bad or failing credit.  These cards are commonly known as bad credit credit cards, and are often the only way for those with bad credit to get a traditional, unsecured credit card. 

Applying for and being approved for this type of card isn’t going to reflect negatively on your credit report so long as it’s used responsibly.  If you pay on the balance on time each monthly then you should expect your credit score to rise within a year’s time, depending on your responsibility with other credit lines and if you obtain any new debt. 

Because repairing your credit is a must, there are a number of things a bad credit borrower must focus on when applying for a bad credit credit card.

     There are many things that affect how much you must pay monthly beyond what you purchase with the credit card.  Many credit cards have fees that might not be that obvious without paying careful attention to the fine print.  Most all of these credit cards have some sort of annual fee for the use of their services which range from anywhere between $25-100. 

There could also be monthly charges that must be paid in addition to the annual fees and also one time fees such as set-up fee.  When comparing cards you’ll also want to take note of fees for transferring the balance, withdrawing cash from the account, and pre-payment fees among other things. 

     One of the most important numbers to look for is the interest rate.  Because these programs are directed towards those who have had credit issues in the past the creditors are taking on much more risk.  This translates into interest rates that are higher than the average borrower will be offered. 

The annual percentage rate (APR) is the actual cost of the credit and includes both fees and the interest rate.  The APR will give you the truest measurement of what you can expect to pay to use a card and this is a good number to use to compare cards with one another.  For bad credit credit cards the interest rate varies greatly with creditors offering anything from 9-40% APR.  This may seem shockingly high but the creditors must ensure that they won’t be left in a bind if you default. 

     If you don’t want to pay an annual fee then you can expect interest rates on the higher end of the spectrum as an annual fee will usually offset the amount of interest charged.  To make the best financial decision you need to take into account if you’ll be able to pay off the card in full each month. 

It is always in your best interest to pay the card off in full since the aim is to repair your credit, and if you do so you will avoid paying interest all together so it will be less of a risk to have a higher interest rate.  However, this may not be a possibility which will make the cost of the annual fee far less than what you’d be paying in high interest rates.   

     How you creditor calculates your monthly payments can also affect how much you’ll be able to pay on your monthly bill.  There is no set rule as to how a lending institution calculates payments, however there are some more common methods that are applied.  These include; adjusted balance, previous balance, average daily balance, and two cycle balance. 

The most widely used method is the average daily balance calculation in which the creditor will total the beginning balance for each day in a billing cycle, subtracting any credits for that particular day.  Depending on the creditor they made add new purchases on the day of the purchase or it will be reflected in the beginning total of the next day.  They then add up all the days and divide by the number of days in the billing cycle to come up with the average daily balance.  Check with the card provider as to what method they use.

     There are a number of providers who offer bad credit credit cards including Orchard Bank, First Premiere Bank, and Centennial.  Other than fees and interest rate you’ll want to consider the services that are offered.  Because these programs easily accept applicants you have the benefit of shopping around for the one that best meets not only your financial requirements but also provider requirements. 

Being able to connect with customer service to get issues addressed is worth its weight in gold sometimes, as is extras such as being able to access your account 24/7 online and tools for managing your account and finances.  One thing that you’ll want to be sure the creditor provides is monthly reporting to the 4 credit reporting agencies.  The point is to improve your credit which you can’t do if your payments aren’t being recorded.

     Understanding your options is key to getting your credit back on track.  It is definitely not in your best interest to simply apply to a large number of creditors in hopes one of them will approve you.  This will be reflected in a corresponding number of inquiries on your credit report and will be seen as a red flag by lenders thus defeating the purpose. 

From the very beginning, understanding what is being offered is essential.  Read everything in its entirety and make sure that you do the necessary work to make sure you’ll be able to meet those monthly payments on time.  In time you’ll be rewarded with a higher credit score and lots more credit card offers to throw away.