Sunday, May 13, 2012

Unsecured Credit Cards For Bad Credit: Understanding The Options

Whatever about getting a loan, the specter of bad credit ratings is supposed to all but end the chances of getting approval on a credit card application. But there are still options available to bad credit borrowers, with unsecured credit cards for bad credit very much available to the right applicant.

What should be kept in mind is that card issuers need to issue cards if they are to make a profit, so there is always a willingness to approve applications. However, getting approval despite bad credit requires some compromises, usually in the form of higher interest rates and stricter penalties for late balance payments.

It is important to check out the true costs of a credit card offer before seeking the unsecured credit card. Between hidden charges, processing fees and other costs, getting a card can prove an extremely expensive investment if care is not taken in what to apply for.

What Are Unsecured Cards?

Card issuers take on quite a lot of risk when they approve unsecured credit cards for bad credit applicants. In some cases, especially if the credit history is particularly bad, the card issuer will insist on a prepaid sum as a kind of security. This is a little like a debit card, as money cannot be spent if it is not already on the card.

But by granting a credit card without any form of security, the card issuer is accepting all the risk involved. A card limit of ,000 leaves them vulnerable to a full ,000 in losses. This is why, with regular banks and traditional lenders, getting approval despite bad credit is something of a miracle.

Those who are willing to issue unsecured credit cards usually charge much higher interest rates in an effort to cover their potential losses. So, while approval might be welcome, poorly managing the card makes it very expensive.

Fees and Charges to Look Out For

When seeking unsecured credit cards for bad credit, it is important the applicant shows the issuer they are in need of the card and its funds. But ultimately, while details on income and current debts are important, the issuer knows that it is up to the cardholder to properly manage the card.

With the share of risk the issuer is accepting, the interest rates and late payment fees are actually very high. Interest can range between 15% and 19%, depending on the card issuer, while late fees can see the overall costs shoot up. Securing approval despite bad credit is great, but it can come at a high cost.

Before taking on any unsecured credit card, check the small print of the agreement for information on charges and fees. Some hidden fees may crop up, as well as processing fees etc, while the APR quoted can be increased if repayments are late.

How to Avoid The Heavy Fees

There is only one effective way to escape the expensive fees - repay the balance on time. A great advantage with getting unsecured credit cards for bad credit is that they can provide the cash needed to deal with specific bills. However, once the bill is paid, then set about repaying the balance.

Interest rates are only applicable to the amount of money used from the card balance at a specific time of the month. If the balance is very low, then the interest charged will be very low too. If the balance is allowed to accumulate, then any benefit to having gotten approval despite bad credit is lost.

Also, make sure that your credit limit is never exceeded. Card issuers normally apply extra fees if that happens, and as each extra fee or penalty is added to the balance, the task of repaying the unsecured credit card becomes more and more difficult.

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