Prepaid Cards in Lieu of Credit Cards for Bad Credit
Posted by admin on Jun 20, 2009
Consumers are still spinning from the economic events of the last year and the impact on the credit industry. Lending standards have become more stringent, as banks and lenders are no longer willing to take a chance on risky borrowers. Borrowers seeking credit cards for bad credit are finding it more difficult to open accounts. Better credit reports and scores are necessary to qualify for many new credit accounts. Even existing customers are finding their credit lines decreased and changes to their interest rates and fees. According to a Federal Reserve study, an estimated 45 percent of banks lowered maximum limits on the credit cards of existing customers in the last quarter of 2008. One of the major credit card companies, AMEX, is offering money to current cardholders perceived as a credit risk to pay the balance on their cards and close their accounts. For its customers who carry large outstanding balances, Chase raised the required minimum payment from 2 to 5 percent. The maximum allowed limit for many customers of Citigroup have been lowered, simply because of the shaky economic times. Some consumers who have had their credit lines decreased now carry a larger debt relative to their available credit, which has adversely affected their credit scores. Other consumers are having to choose which financial obligations get paid first in these turbulent financial times, and credit cards bills often take a back seat to mortgage and car payments. As a result, there are more people who are now looking for credit cards for bad credit to help them through these times.
In order to have a credit report and credit score, you need credit history from things like a credit card. And you cannot get more credit, unless you have some credit history. Most consumers who are seeking credit cards for bad credit know how vital good credit is. They are often forced to obtain a card with higher rates and fees, due to their poor credit histories. If consumers keep the hefty rate and fee credit card accounts in good standing, it can help their credit histories. Frequently, though, consumers are overwhelmed by the interest payments and fees and accumulate more debt and make their credit worse. A prepaid credit card is a less risky alternative. You put money on the card and can buy things with the card until the balance runs out. Unfortunately, the prepaid option does not give the consumer an opportunity to create or improve credit history. Financial experts usually tell consumers to pay off existing debts, keep the oldest account in good standing and resist the temptation to open new credit cards for bad credit. Accounts with a good status that you have had for a long time reflect positively on your credit score. Maintaining the history of your longest standing account and utilizing prepaid cards can empower you to build a better credit report and score. Eventually, you will no longer have to seek credit cards for bad credit and can, instead, qualify for traditional cards with low rates and fees.
It was an effortless sell and it appeared that anyone would be approved. Everyone I knew who applied for a credit card on campus had one in their hands within a week or two. I can think of just as many students whose balances grew and grew, because they only paid the minimum required payments. The allure was understandable. It was like free money during a time when most of us had little.
As long as you are civil, requesting a lower interest rate is a risk free method of improving your interest rate with an excellent chance of succeeding.
If you pay an annual fee, the same method can convince your credit card issuer to waive it. If you would like a different due date or want to transfer to a different rewards program, you do not even have to claim you are planning to leave for a different company. Just ask politely.
You can improve your credit card terms remarkably even if you originally got your card under terms designed for credit cards for bad credit.
Thanks for sharing. Great blog info.
You need a credit history to get credit. Those trying to improve their credit histories struggle to do so, because more credit is needed to do it. Consumers who are shopping for credit cards for bad credit will find that offers available to them come with extremely high APR rates. Many exceed 35 percent. Many consumers who have to choose cards with higher fees and interest rates find it difficult to stay on top of the bills, which then will adversely affect their credit scores and reports.
The parent can reinforce the importance of debt repayment by insisting that the student obtain a part time job to cover the cost of charged personal expenses. Student credit cards also introduce the interrelated concepts of interest charges and late payment fees and illustrate how rapidly they accumulate on unpaid and overdue credit card debt. Student credit cards can even develop budgeting skills as the student learns to make (hopefully) sound choices on how best to utilize the credit balance.
The wise lender views college students as risky to start and will issue student credit cards with low borrowing limits and higher than average interest rates until the student establishes a good credit history. Building a good credit rating early on will undoubtedly help after graduation when the time comes to rent an apartment or buy a new car.
This was a great read.