Bad credit credit cards are offered by many banks as financial tools to help people re-establish their good credit rating.
It's unfortunate when people fall on financial hard times, can't afford to pay their bills on time and damage their credit.
However, many banks feel that such people had good intentions to pay their bills, and would do so if given another chance.
Banks that feel this way offer bad credit credit cards as a means to re-establish a solid credit history.
-- Credit Tip by FindLocalBanks.com
Federal law requires that all creditors must state the cost of their credit in terms of an Annual Percentage Rate (APR). This rate takes into account how the loan is repaid on a yearly basis, and allows you to accurately compare the cost of credit among lenders. For example: You borrow $1000 for one year and pay a finance charge of $100. If you can keep the entire $1000 for the whole year and then repay $1100 at year’s end, you are paying an APR of 10 percent. But if you repay the $1000 and finance charge (a total of $1100) in twelve equal monthly installments, you don’t really get to use $1000 for the whole year. In fact, you get to use less and less of that $1000 each month. In this case, the $100 finance charge amounts to an APR of 18 percent.
There are two types of bad credit credit cards:
- Secured Bad Credit Credit Card:
With this type of bad credit credit card, the bank will require you to deposit cash into a savings account (i.e. $500-$1,500).
The bank will then issue you a card with a spending limit equal to the amount deposited with the bank. The money you deposit
serves as collateral for use of the bad credit credit card. If you fail to pay your credit card balance, the bank will use the money
in the savings account to pay the balance.
- Unsecured Bad Credit Credit Card:
With this type of bad credit credit card, the bank will likely issue you a low spending limit (i.e. $500). However, you will not have to
deposit any money (for collateral) with this type of card. The bank will increase your spending limit over time as you
prove your ability to make the monthly payments.
-- Credit Tip by FindLocalBanks.com
The finance charge is the total dollar amount you pay to use credit. It includes interest costs and other costs, such as service charges and some credit-related insurance premiums. For example: Suppose you borrow $1000 for one year, and the interest is $100. If there is a service charge of $10, the finance charge will be $110.
The fact that bad credit credit cards carry a high interest rate (most likely 20% or more) shouldn't prevent you from getting
one in an effort to get your credit back on track. If you use a bad credit credit card for small purchases for a year or two and consistently pay the entire balance every month,
not only will you not be charged interest, but you will rebuild your credit and be able to get lower rate loans in the future.
