Credit cards available to people with a bad credit score can come from a variety of sources and we saw in October that there were indications some credit card lenders are beginning to offer more options to subprime borrowers, but often is the case that these consumers who are having trouble getting a line of credit will turn to a secured credit card, as these options are usually tailored to borrowers with a bad credit score. Yet, how consumers have used these cards will often differ, and these users will obviously bring about a variety of benefits for cardholders who are in need of this particular type of credit.
Obviously, consumers should make sure that they first look at the interest rate they will receive, as current sources that have tracked rates here in early November report that an APR on these secured credit cards, or cards that are simply available for bad credit borrowers, could range from anywhere to 14.9% to as high as 24.9% or more, and this will obviously have to factor into the use of a secured credit card by the borrower. It goes without saying that cardholders who are in a bad credit situation often turn to a secured card as a way to begin rebuilding their credit score, but there are those who use these cards as consumers would use unsecured credit cards, and that they simply make everyday purchases or buy costly items on this card and then pay off the balance over time.
When it comes to carrying a balance on a secured credit card, many officials have often warned cardholders to avoid this particular practice as it can be more costly in the long run since a higher rate associated with a secured credit card could lead to higher overall costs depending on how long a cardholder carries a balance, what rate they receive, and how often they make a charge that will carry from one month to another rather than being paid off in full. Understandably though, cardholders do have to make a personal decision when it comes to using secured credit cards, but again, we have traditionally seen these cards used for the purposes of improving a bad credit score.
Simply put though, secured credit cards will also require collateral on the part of the borrower, hence this is why they are secured, and this is often gone overlooked by potential secured credit card users in the past and must also be considered into the equation along with the interest rate they will receive and how they plan to use the card. In some cases, securing a line of credit, be it a credit card or even a secured loan, may simply require a deposit of a sum of money into an account, which may draw interest as well, but can be lost if the cardholder does not honor their charges on their secured debt.
If this is the case, cardholders who have been using these secured credit cards and missed payments in the past will obviously not only do damage to their credit score further but will lose funds that they have put into this account which secures the card or if other forms of collateral are offered, it goes without saying that a consumer will lose what they have put up against this card as well. Arguments are being made that since there are some banks who are offering subprime borrowers access to unsecured credit, consumers could benefit from looking at both secured and unsecured credit cards, but again it comes down to what rates a consumer receives, what type of collateral will be offered, and the use of a credit card, in terms of whether a balance will be carried or if the consumer simply uses them for the purposes of bad credit repair, as to what type of card will be helpful and if these particular lines of credit will be best for a consumer’s situation.