Find the Right Credit Card for You
Subprime credit cards are ideal for building credit after bankruptcy or securing another line of credit. They are generally classified as secured and unsecured credit cards.
Secured Credit Cards
These cards require a cash deposit that is equal or greater than the credit limit. The cash deposit serves as security that ensures payment of the balance.
Unsecured Credit Cards
These cards don’t require money to be put up as collateral. Lenders rely on your word that you’ll be responsible for monthly debt payments.
Credit Cards – FAQs
What is a subprime credit card?
It is a credit card issued to people with bad credit. A subprime credit card’s credit limits and rates depend on how much of a “risk” a borrower is to a lender.
Who are subprime borrowers?
These are people whose credit scores fall below what is considered “prime” or very good credit. A credit score of below 600 is usually considered subprime.
What causes or contributes to bad credit?
Bad credit happens because of negative credit events like bankruptcy, foreclosure, and delinquency, or worse loan default. It could also be due to having a limited or no credit history, at all.
How is a subprime credit card different from the usual credit cards?
Subprime credit cards cater to this segment of consumers who may have been rejected by conventional credit card lenders. Other than that, subprime credit cards function like conventional cards and carry the same consumer protections.
Do I have to put up a cash deposit to use a subprime credit card?
For secured credit cards, yes. The cash deposit serves as a collateral to the credit card, securing the payment of the line of credit being extended to the borrower.
Is it true that subprime credit cards help in building credit?
Yes, with responsible usage. Subprime credit cards help you build or rebuild your damaged credit history and improve your credit score faster (within six months or so). That’s why they are referred to as “second chances” credit cards.
How I am able to do that (building my credit)?
By paying your credit card balance in full and on time every month, curbing your purchases (to avoid incurring further fees), and keeping your credit card in good shape. After all, a subprime credit card is meant to help in improving your credit and not for long-term borrowing.
What happens if I’m able to build my credit history?
This will help you secure better offers on mortgages, cars, and even credit cards. For your good payment behavior to make a difference, you must ensure that your credit card issuer reports this to the three credit bureaus — TransUnion, Equifax, and Experian.
What are fees associated with subprime credit cards?
When you apply for and use subprime credit cards, you will incur fees such as:
- One-time fees: Cover an application fee and a processing fee.
- Annual fee: Pays for the privilege of using the card.
- Monthly processing fee: Varies depending on the issuer.
- Balance transfer fee: Happens when you transfer balance between credit cards, usually 3% to 5% of the transferred amount.
- Late fee: Relates to a late payment. Aside from incurring a fee, any missed payments will hurt your credit report.
- Other fees: Include maintenance fees.
Given my current credit, do you think I can get lower credit card rates?
Rates vary among subprime credit card lenders. It’s best to shop and compare rates. Start by contacting lenders and tell them personally about your circumstances. You can reach them here.