Credit mistakes in the past can cost you dearly in terms of poor credit scores. Those with less than perfect credit scores sure know the challenges of living a life without much financial assistance. Firstly, obtaining loans becomes a daunting task, as very few financial institutions are willing to put their money on high risk clients. As a result, they charge you very high interest rates to offset their risk. During such an event, your first priority should be improving your credit score and entering into the good books of creditors.
Unsecured Credit Cards to Rebuild Credit
As you begin to get out of your overwhelming debt, you will discover that there are quite a number of ways to improve your credit score. Unsecured and secured credit cards are often sought after by people who wish to improve their credit after a financial debacle. Secured credit cards require you to pledge an asset worth the limit of the credit card. This is in the creditor's interest should you fail to repay your debt. For instance, for a credit card limit of USD 500, you will have to pledge something worth USD 500 as security. The security will be returned to you after you repay your impending debt and close your account with the creditors.
Unsecured credit cards do not demand any such security. Needless to say, they are quite popular among people with 'not so good' credit scores. However, such debtors are perceived as high risk customers by the financial institutions or creditors. As a result, they try to offset the risk by charging them higher interest rates. Besides, the debtor is required to pay an additional amount towards various processing and program fees. In addition, there is this annual fee which you must pay for the privilege of holding a card. People with average or good credit scores are relieved of all these additional expenses. However, when you are low on credit, you do not have much choice and need to make the best of what you have.
Unsecured credit cards for bad credit may help you steadily build your credit. If you are thorough with your monthly payments, your credit scores will show an improvement over time. Many people opt for prepaid credit cards in a hope to curb their spending habits. Although prepaid credit cards may limit your expenditure, they do nothing to improve your credit scores.
How to Choose
As mentioned above, you will be expected to pay a number of additional expenses as a part of acquiring a credit card. Most credit card companies charge an application fee over USD 100. Besides, there is a USD 20 one time processing fee and a USD 5 monthly processing fee. Additionally, you will be required to pay an annual fee as well, which may differ for every credit card company. All in all, you are likely to spend a couple of hundred dollars before you even swipe your credit card. Add to that a whopping interest rate close to 20%. This makes the use of unsecured credit card even less profitable. However, if you research thoroughly, you may come across a few institutions that particularly cater to the needs of people with bad credit scores. Look for reputed institutions with lower interest rates and less overhead expenses.
Thus, it is possible to get unsecured credit cards to rebuild your credit. Being diligent with your monthly payments can certainly help you build good credit in less time.