When speaking of bad credit, many people instantly think about secured credit cards as the perfect tools for repairing damaged credit. But did you know that there are credit card issuers today that offer unsecured accounts for people with bad credit? Yes! This special type of bad credit credit card is called unsecured credit card for bad credit.
As the name suggests, this type of credit card is offered for people who have a poor credit score, bad credit history, or no credit history. Nevertheless, unlike a secured credit card, an unsecured card does not require a cash security deposit. There is no need to submit a down payment in order to open an unsecured bad credit credit card account.
Is there a catch? Obviously, issuers of unsecured bad credit credit cards are taking a big risk in extending accounts to people with bad credit without asking for a deposit. To make up for the risk, these issuers understandably impose a higher rate of interest and extra fees. Yet if you do your research well, you should be able to find an unsecured credit card for bad credit with reasonable terms.
Unsecured bad credit credit cards give people the opportunity to repair their credit history without submitting a cash deposit. Typically, the cash deposit for secured credit cards range from $200 to $500, depending on the desired credit line. With an unsecured credit card for bad credit, you can enjoy a $200 or $500 credit limit without providing an upfront payment.
The difference is in the fees. Unsecured credit cards may come with higher fees. You might also pay an extra charge for each transaction or each time you have to use your unsecured card. For instance, unsecured bad credit credit cards usually come with a set-up fee and processing fee. You may also need to pay a minimal charge or a flat rate each month to keep your account active. The annual fee is another basic fee to be expected from bad credit credit cards.
What about the interest rate? You should expect a much higher rate of interest than what secured credit cards offer. The rate on unsecured cards for bad credit can start from 20% to as high as 30%, depending on the issuer.
Penalty fees are higher as well especially if you fail to submit your monthly payment on time. Expect to pay more if you exceed your credit limit. Nevertheless, these restrictions should be seen in a positive way. Keep in mind that if you really want to improve your bad credit history, you cannot afford to fall behind your payments. Even a single delay with payment submission can badly affect your credit score.
Furthermore, you need to keep your credit usage minimal since exceeding your limit can pull down your rating. The key is to use your unsecured bad credit credit card regularly or at least once a month, yet keeping your charges minimal at the same time. Ideally, you should keep your charges at least 10% but not more than 30% of your available credit.