Many people believe that because of their bad credit, unsecured
credit cards are not available to them. While it may be more
difficult, there are options for people with bad credit who
want an unsecured credit card to build their credit or have
available for use in an emergency. While a secured credit card
is the most commonly recommended option for people with bad
credit, unsecured credit cards ARE available - even for those
with the worst credit.
Bad Credit: Unsecured Credit Cards vs. Secured Credit Cards
One of the easiest ways to get a credit card when you have bad
credit is to opt for a secured credit card. With a secured
credit card, you deposit money in a bank designated by the
credit card company to serve as a 'security deposit' - an
assurance that they'll get their money if you default on
payments. Depending on the lender, that deposit might be equal
to your desired credit limit, or slightly higher or lower. A
security deposit of $300, for instance, might get you a $150
line of credit with one company, a $300 line of credit with
another, and a $400 one with yet a third. The interest rate is
generally competitive, since the company has a guarantee of
getting its money if you don't make payments.
An unsecured credit card requires no security deposit. A bad
credit unsecured credit card will often have either a high APR
(annual percentage rate), high fees, or both. How do the two
stack up against each other? Here's a comparison from two
actual credit card offers that are sitting on my desk as I
write:
Secured Credit Card
Security Deposit: $250
Annual Fee: $35
Setup Fee: $35
APR: 15.40%
Credit Limit Increases: $100 increments, each require $100
deposit
Bottom Line: It will cost you $370 to maintain a $250 credit
limit for the first year, with at least $250 up front, at an
APR of 15.40%. You'll have $170 available credit upon receipt
of your card. You'll have to put up an additional $100 every
time you want to increase your credit limit.
Bad Credit Unsecured Credit Card
Annual Fee: $48
Setup Fee: $29
Participation Fee: $72 (annual, billed at $6 monthly)
Program Fee: $95 (one time fee)
APR: 9.9%
Credit Limit Increases: $25 (per increase of $100, at their
discretion)
Bottom line: It will cost you $244 for the first year, all of
it billed to your credit card on your first statement, to
maintain a $250 credit limit with an APR of 9.9%. You'll have
$72 credit available upon receipt of your card.
In the long run, while a bad credit unsecured credit card may
cost you more, you won't be tying up your money up front.
Either card will help repair your credit as you make payments
on time and regularly, but the unsecured card has an APR that's
almost 5% lower. You're the only one who can decide which is the
better option for you - but it makes sense to weigh all your
options before you decide that your only way to have a credit
card is with a security deposit.
@ Copyright 2005 - Bill A Smith
About The Author: Bill A Smith is a credit counselor for
http://www.americreditservices.com/ Feel free to visit our bad
credit help center at
http://www.americreditservices.com/bad-credit/
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