Credit Cards for Bad Credit: Do They Really Help?
Credit Cards For Bad Credit: Do they really help?
With the rise in delinquencies and lack of affordability, there’s been a surge in credit cards for bad credit people. These cards are primarily aimed at people with poor credit histories. This could be due to a variety of reasons – inability to pay the mortgage bills, insufficient household income, high-interest rates, etc. Bad-credit credit cards help such people to overcome existing cash crunches. However, it is mostly a vicious cycle and having more cards just adds to the problem.
Prepaid Credit Cards: A boon to people with bad credit
Prepaid credit cards can be a great help to people who are suffering from delinquent accounts and poor credit ratings. While they work pretty much the same way as a regular checking or savings account, they have many more benefits that make them suitable for a person in debt.
How does it work?
A prepaid credit card works on the same fundamental principles as a debit card or a savings account. You basically need to pay the credit card company an upfront fee. Then you can start depositing the money with the bank. After this, you are issued a prepaid credit card. You can use this card to book hotel rooms or on rental cars. Once you have exhausted the amount deposited, you will need to pay some more fees. Then you can deposit some more money in the account.
Advantages of prepaid credit cards
A prepaid credit card is great for people with bad credit. People who suffer from existing debts usually have a hard time qualifying for regular credit cards. They are usually turned down by credit card companies because of having too many outstanding balances and a poor credit score. While they do not qualify for a regular credit card, they can easily get a prepaid credit card. This card is great because there is no interest involved. It also allows you to make a deposit into the account every month. Since it is your own money, there is no hassle of repaying credit taken. Besides, such prepaid cards also allow you to rent cars and book hotel rooms – a benefit not offered by the regular debit card.
Drawbacks of a prepaid credit card
While prepaid credit cards do seem to work well with people having bad credit, they often have their own set of disadvantages.
- You need to pay a fee every time you deposit money into the prepaid account. This can work out to be expensive in the long run.
- If you want to purchase an expensive item that needs to be paid off in installments, a prepaid card cannot be used for such purchases. The reason is that businesses are apprehensive of selling items to people with a prepaid credit card.
- Most of the credit card companies that offer prepaid credit cards do not report payment activity to the credit bureaus. This can really backfire on people with bad debt. Most people having bad credit will try to consolidate their debts and improve their credit rating. On receiving a prepaid credit card, they’ll try their best to pay off balances. However, if this improvement in payment activity is never reported to the credit bureaus, it won’t have any effect on improving credit ratings.
- Many of the so-called ‘free’ prepaid cards actually fleece customers during ATM transactions, in their monthly fees and loading charges as well. This can really eat into the incomes of people with bad credit.
Things to look out for
Many of the prepaid cards actually have a catch to them. Some will promise you that you’ve been guaranteed a prepaid credit card. Others might want to get out a lot of your personal information – things like SSN, driver’s license, passport number, date of birth, etc. Never give these out as you risk the danger of being thrown open to malicious attacks using your account. There’s another drawback too. Since you’re depositing money into the account every month, there may be occasions where there’s a tiny amount left in the account – an amount that cannot be used for any purchase. You must be prepared to let that go! That’s a sad thing because it’s your own hard-earned money. Therefore be careful with prepaid credit cards – use them judiciously and you’ll never go wrong!
Features offered to help people with bad credit
There has been a huge rise in the number of people with bad credit. This has led to many credit card companies offering cards with special features to help such people out. However, banks also have an underlying purpose in it – the prospect of getting more money, earning more interest and collecting fees – is enough for them to start this line of credit cards.
- No upfront fees: Many credit card companies realize that customers are as it is facing a tough time in paying off their debts. To ease their situation a bit, these banks provide credit cards with no upfront fees.
- Reports to credit bureaus: People with bad credit are always trying to improve their credit rating. Therefore they always make a conscious effort to pay on time and as much as they can afford. However, all this doesn’t make sense if the improved payment patterns are not reported to the credit bureaus. Therefore most credit card companies today report such payment patterns to the credit bureaus. This helps in improving the credit rating. Some credit card companies even report to credit bureaus on a monthly basis, which accelerates the process of improving credit rating.
- Low APR: Lack of affordability is such a concern among people with bad credit that they always look for discounts on their purchases. Usually, these purchases are for basic necessities like food, clothing, and rent. Having a lower Annual Purchase Rate on the card can mean making more purchases.
Credit cards for bad credit are not always as malicious as they’re made out to seem – there are companies who genuinely wish to help people in need.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Jason Nicolosi