"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.
©2006 Credit Card Depot Inc.
