Financial Tips | Debt Management

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1/29/09

Tips for Obtaining Credit Cards With Bad Credit

If you have bad credit, you probably should not be obtaining a credit card. As is evident by your credit score, you have gotten in trouble with debt in the past and may not have acquired the education necessary to avoid this trap again in the future. That being said, if you are adamant about obtaining a credit card for whatever your reason, there are some things you should know.

First and foremost, because you have bead credit, you are in a weaker bargaining position. As such, you may have to accept some terms on your credit card that you should not ordinarily accept. One such term is a high interest rate. However, this does not mean that you should pay the highest interest rate possible. If the credit card you are looking at has an interest rate at twenty percent (20%) of higher, walk away from the credit card offer. Regardless of the level of your need for a credit card, obtaining a card at twenty percent (20%) interest or more, even with bad credit, is pure lunacy. If you were to make a purchase with such a card, absent you paying off the outstanding balance once the bill arrived, you would be throwing money away.

Another concession you may have to make, and not a bad one at that, is that you may have to settle for a card with a lower credit line. Based upon the severity of the negative information in your credit report and your credit score, you may be approved for something as small as a three hundred dollar ($300) credit line. This is a very small credit line that probably will not do much for your situation, but the good news is that such a small credit line will also help protect against you accumulating too much debt.

Regardless of how low your credit score is and how much negative information is in your credit report, you should always avoid secured credit cards. Secured credit cards are basically credit-debit cards. With secured credit cards, you have to deposit a certain sum of money with the bank (for example, $500) that issued the credit card. This deposit becomes your credit line and you charge purchases based upon your deposit. However, instead of paying off the purchase from your deposit, the bank sends you a bill. Your deposit money simply sits there, not collecting interest and not helping your situation. Additionally, secured credit cards usually have ridiculous fees (such as account set-up fees, annual fees, program fees, and account maintenance fees, to name a few), which do nothing but cost you money, and extremely high interest rates. The bottom lines is that even though secured credit cards may help to rebuild your credit, because of the enormous amount of fees and the extremely high interest rates, it may be better for you to wait the seven (7) to ten (10) years it takes for negative information to be removed from your credit report instead of getting the secured credit card.

If you have bad credit, know that you may have to pay a higher interest rate and may have a lower credit line. However, you should stay clear of secured credit cards because the small benefit your credit report receives from using such a card does not make up for the enormous amount of money that these cards cost.

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