The loads of credit card promotions you receive weekly are probably a sign that your credit is a little less then fair. These promotions range from offering questionably interest rates to down right illegal. For those with bad credit to consider applying for these cards seems reasonable, but before you get into more debt, locate and thoroughly read the “Terms and Conditions”. The “Terms and Conditions” is usually in fine print. The credit card companies are hopeful this fine print is hard on the eyes but if you manage to get through it is written for a 3 year college law student. In the low-end credit market there are ways of understanding which card is best for you.
Let’s start with a more popular card the “low-limit” starter being offered and published by major credit card companies in today’s consumer market. The plastic or cardboard replica of a Visa card is probably with the offer. In the “Terms and Conditions” portion of the offer you will see the annual percentage rate (APR). Today’s rate with these offers is probably around 19.5%, which is not for the most part a striking rate. They are some much higher. Go down a little farther down, you’ll find the on this APR for cash advances is around 26%, since there is greater risk involved to the company this is normal.
The interesting section is the fees associated with the card. For example, the annual fee, the set-up fees and the monthly “maintenance” fee. Don’t take a breathe yet because it gets better, somewhere at the bottom, buried in the fine print, there is something called “Available Credit Limitations”. It informs you that your initial credit limit will be a $300 and your annual and set-up fee will be billed on your first statement. The maintenance fee is billed after you make your first purchase on the card.
Pull out your calculate and let’s start doing the math. It will cost possibly $179 up front, plus $78 per year, to get $300 worth of credit. Let’s say you off the balance each month and don’t incur interest charges, you should ask yourself is does this make sense to pay $257 to obtain $300 worth of credit, with 85.6% in effective interest. If you manage to maintain a running balance of $300 on the card by just making the minimum monthly payments, the effective interest rate will be 105.2% in the first year alone. Don’t forget the 95.5 % for subsequent years. That’s pretty expensive! While legal this credit card offer still counts as a total rip-off.
Although the offer is open to discussion there are others that are worse floating around. In some deals the fees are so stiff that you start out more than the credit limit before your name is printed on the card. A bogus category that should not be ignored is where you are required to pay an advance fee preceding to receiving the credit card. There are also “catalog cards,” this is where you allegedly build credit by purchasing items through a card connected to a particular business offering grossly overpriced junk.
Determining which credit card offer constitutes the best offer for someone wanting to build, rebuild or experience not so perfect credit is great question to ask yourself. The big credit card marketing companies target the consumers with bad credit histories the advice here is to completely avoid unsolicited offers. As an alternative solution for yourself research and visit websites like www.bankrate.com for current offers by legitimate credit card companies. Before you apply shop and compare. The APR is only one aspect of your decision not the most important, you should focus on the annual fees, setup fees and monthly fees.
If you realize that obtaining an unsecured credit card to rebuild your credit is unlikely, looking into a “Secured” credit card with a reputable credit card company. This is where you deposit is your initial credit limit. The annual fees are about the same but the APR is a little lower. Best of all there are no setup or monthly set-up fees, your limit will be your initial deposit minus the annual fee and it’s still your money. You will build a positive credit history just as fast as with the extremely expensive offers discussed above. With a secured card you can eventually apply for an unsecured credit and any outstanding balance on the secured card will be paid off because of your initial deposit.
A final tip to keep in mind, when the opportunity presents itself join a credit union, they have offers for low-limit unsecured and secured credit cards. Credit unions frequently have better terms than regular commercial banks and often offer credit cards with no annual fees, lower interest rates with better flexibility. Be sure to confirm that the credit union reports your positive payment history on the new credit card to the credit bureaus; otherwise, it won’t boost your credit score. No matter what offer you’re considering the fine print should be read thoroughly.