When you have good credit, applying for financing or various credit products probably isn’t accompanied by much concern or stress; heading to the bank or submitting an application for a credit card usually yields favourable results. However, if you’re on the other side of the fence, and your credit history is less than stellar, you may be considering financing through credit cards for bad credit.
Sure, the idea of obtaining a credit card when you have bad credit and have fewer options may sound great, but things are not always what they seem. While many may be swayed by the lure of credit cards for bad credit, it is important to recognize that there are usually many strings attached, strings that you may quickly become tangled in.
Higher interest. Credit cards for bad credit often come with much higher interest rates than those not targeted to bad credit. While most credit cards charge high interest, those companies offering credit cards for bad credit are banking on (literally) your credit history and charging more because you are high risk. This means that, if you’re struggling financially, unless you can actually pay in full each month, you’re actually paying far more than you could be paying.
Fees. Most credit cards come with monthly fees, but just beware that those designed for bad credit may have higher fees, or fees that are determined by credit score.
A smart alternative is a secured credit card. A secured credit card is one that you ‘load’ with money (your money) to use for whatever you want. This money is considered your credit limit on the card. Each month, you make regular payments on the card just as you would with a regular credit card. You also get the added benefit of rebuilding your credit when you display good credit behaviour (staying well under the limit, paying more than the monthly minimum each month, etc.).
Whatever you end up choosing for a card, here are some tips that should help you improve your credit as you go:
- Pay on time, every month. This is a no-brainer, but is really important, especially when you’re trying to rebuild credit.
- Keep balances low. When you keep your balance high, this can negatively impact your credit score. A good rule of thumb is around 50% of your total credit limit. Try to stick within that.
- Pay more than the minimum. Since the minimum payment is primarily interest, try to pay more than that amount each month to get the balance down.
- Don’t apply for more. Applying left, right and centre for new cards makes you look like a credit-seeker, someone who is not living within their means. This will also negatively impact your score, so avoid it.
If you’re concerned about your ability to acquire new credit, even by way of credit cards for bad credit, you may want to think about how you can get your debt under control and regain financially stability. At Spergel, our goal is to get you there.
Call us today, toll free, for a free consultation: 310-4321.