Unsecured Credit Cards For People With Bad Credit
By Mory Brenner, Esq.
When you think of a credit card you most likely envision an unsecured credit card. To understand the concept of an unsecured credit card we must break down its components. At the core of an unsecured credit card you'll find an unsecured personal loan. Link that unsecured personal loan to a merchant system that allows you to access your personal credit line for all sorts of personal daily purchases, like the Visa, MasterCard or Discover systems, and you end up with a an unsecured credit card.
For our purposes today, we must examine how an unsecured credit card works for a person with bad credit. Since an unsecured personal loan forms the core of an unsecured credit card our examination starts there. When a person's credit already lies in the gutter finding an unsecured loan ranges from hard to impossible. Recent credit problems with banks made things even worse. I hate to say it, but for most people with bad credit, and almost everyone with very bad credit, finding an unsecured personal loan will just result in a waste of time. Maybe at some point in the future credit standards will loosen up a bit, but for now not many options exist. For a more in-depth discussion of obtaining an unsecured personal loan with bad credit read my article entitled How to get money when you need money, which includes a section on the topic.
Now we examine obtaining an unsecured credit card with bad credit. You may find your credit score really stands higher than you expected. Certain unsecured credit cards may accept you even if your credit report shows a few minor blemishes. We must also draw a line between bad credit and no credit. Those with no credit at all may find some options. Discover, for example, offers a special Discover card for students designed to help them build good credit. Others with no credit may find some success applying for department store credit cards or gas company credit cards rather than a Visa or MasterCard from a national bank. For people with truly bad credit, I know of zero legitimate credit cards that would invite their application at the time of this writing.
My last paragraph perhaps surprised you; after all, you see offers everyday for unsecured credit cards saying they accept people with bad credit. You need to take a hard look at these types of unsecured credit cards, learn their tricks, and avoid them. Most break down something like this: You get lured in with a promise of a credit line of up to $5,000 or $10,000. The fine print says the unsecured credit card issuer maintains the right to run your credit and based on their examination your credit line may be anything from $250 to the pie in the sky maximum they teased you with. Everyone with bad credit end up with the $250 credit line. So what you say? A $250 credit line sounds fine? When you learn what you paid for your $250 credit line your tune might change. I recently searched out one of these offers at random and found these fees associated with the unsecured credit card: $29 account set up fee, $95 program fee, $48 annual fee, $7 monthly servicing fee, and let's add an extra family member card for another $20 fee. Add those all up over the first year and you will find your $250 unsecured credit card cost you $276. For those who wanted to really get ripped off try keeping a card like that for several years. Read the credit card terms carefully looking out in particular for fees, you can spot these bad unsecured credit cards right away and avoid them.
Another credit card to avoid involves unsecured credit cards that may only be used to order goods from the issuers of the card issue's own overpriced catalogue. Aside from the downside of their limited use and paying too much for your merchandise, these catalogue cards may not help your credit either. In addition to a review of the credit cards terms to show the true colors of a credit card like this, note that these cards display neither the Visa nor MasterCard logo.
Now you know the scoop on unsecured credit cards for people with bad credit, how should you proceed? If you really want an unsecured credit card understand how credit scores work and learn your own credit score. For those whose credit report indicates a score in the 700s, find a good unsecured credit card application and apply for one you like. For those whose credit report reveals a score in the 600s you might want to make an attempt at a more forgiving card as described above. These guidelines provide no more than a very rough suggestion for those with no knowledge at all of the credit system. Some people with a 700 might still get turned down for an unsecured credit card and a person in the high 500s might get one, more factors do come into play. In general however, if you start looking for an unsecured credit card with a credit score in the 500s or less you need to start thinking about other options besides an unsecured credit card, like a secured credit card, prepaid credit card or debit card.