Credit Cards for Bad Credit Cost Consumers More
Posted 05/05/09
Americans are dependent upon their credit cards. Credit cards have become a resource for everyday spending. Instead of carrying cash or a check book, people use their cards. It is less risky than walking around with a wad of money in your pocket and is easy for retailers to deal with. You swipe your card at the grocery store checkout, sign the receipt and away you go. It is a convenience that most people depend upon. Ideally, it should be viewed as an extension of your bank account, not free money. Some consumers, however, have been lured by the instant gratification offered by a credit card and spent beyond their means. Instead of paying off balances in full each month, they pay the minimum balance and continue to accumulate debt. The result for many has been to default on those credit cards, which has affected their credit scores. To qualify for a new account, those individuals must now seek out credit cards for bad credit.Banks who offer credit cards are tightening their standards and taking on less risky customers. Even customers who pay their bills on time are finding changes to the terms of their accounts. Banks have increased interest rates and fees, raised the required minimum payments and lowered credit limits. According to a recent survey, the national average interest rate for credit cards right now is 12.1 percent. That translates to more money owed if you do not pay your balance in full each payment period. A lower credit limit for those who carry a balance means a higher debt to credit ratio, which can adversely affect their credit scores. Banks no longer want to carry the risk of those who need credit cards for bad credit. When the economy was booming and the credit industry was flourishing, almost anyone could get a credit card. Now those who must turn to credit cards for bad credit must pay a price. Cards offered to those consumers come with high interest rates and fees. Interest rates may be as high as 35 percent. That means that those consumers will owe more money if they do not pay their balances in full. It is much harder for consumers who have debt on high interest cards to pay it off. Some consumers, who are trying to pay off their credit card debt, yet still want the convenience of a credit card, are choosing debit cards or prepaid cards as an option. Both options do not come with the pitfalls of traditional cards. A consumer cannot buy more than he can afford, thus making it more difficult to accumulate debt. Although debit and prepaid cards will not help consumers improve their credit scores, they help build responsible habits around spending. This can be an invaluable tool for those who only qualify for credit cards for bad credit.