Credit Cards for People With Bad Credit: Real Options Open to Everyone

June 23, 2012 by  Filed under: Credit 

A poor credit history is supposed to work against people seeking another one of those pieces of plastic that we all seem unable to do without. In fact, it is expected that these cards are the a definite casualty to bad credit. But, believe it or not, there are credit cards for people with bad credit.

Provided applications are properly structured, it is possible for those of us with very poor credit scores to get approved for new cards. And with a fast approval rate, the stress involved in applying for financing is kept to a minimum. What is more, these cards can provide a route back to sound financial status.

With this in mind, the apparently harsh terms that come with these credit cards are worth the sacrifice. High interest rates and low card limits might make the efforts seem counter-productive, after all. But given the limited opportunities around to improve financial situations, they are a viable option.

What to Expect

Of course, that is not to say that just any set of terms should be accepted. It is only logical that credit cards for people with bad credit will come at higher than usual interest rates, often making them very expensive. But the rates can range dramatically, depending on which issuer has been approached. Basically, cards issued through traditional lenders, like banks, will have very high rates, while online lenders will generally issue cards at better rates.

The fast approval rate can make snatching the offer before it is taken away the best strategy. But, as with every financial decision, it is important to look at the terms in detail and calculate just how expensive it will be.

It is also worth noting that interest rates are only charged when repayment of the amount spent on credit cards is not done on time. It is only when the repayment schedule is not adhered to that the element of expense comes in.

Advantages of High Interest Cards

For anyone in a tight financial situation, keeping to a repayment schedule amid all the other financial obligations can be very difficult. There is always a risk that the interest on a credit card for people with bad credit will be charged. So why take the risk at all?

The answer is that it offers another way to return to a strong financial status. Just as a loan allows the borrower to access much needed funds, and improve their credit scores as the debt is repaid, a new card allows the owner to take control of debts and provide a structured way to improve their score too. A fast approval rate also means that the route can be accessed almost immediately.

The credit cards are usually available with limits of just $1,500, though it is possible to get some as low as $500. What this means is that the interest sum is never huge, as long as spending is kept under control. So, keeping the repayment schedule is also made easier.

Secret to Approval

Getting approval might seem a mystery, but the criteria for credit cards for people with bad credit is nothing strange. It comes down to two simple factors: income and debt-to-income ratio. If an income is large enough, then being able to make repayments on time on a low limit should not be a problem.

Having a healthy debt-to-income ratio all but ensures a fast approval rate, since it confirms the affordability of the card. The ratio, set at 40:60, limits the share of income for debt repayments to 40%, so unexpected living expenses can be met if necessary. Often, repaying loans and credit cards is hampered by these sudden extra bills.

Sarah Dinkins is a financial advisor who writes about Guaranteed Unsecured Credit Cards and 100% Guaranteed Bad Credit Loans

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