Bad Credit Card Application

Credit cards are essential for modern life. They are the only effective means of making purchases online and in many stores, and they allow a person to buy things all week even though they are only paid once a week, once every other week, or once a month. Unfortunately, since credit cards are inherently risky for banks, they are hesitant to just give them out to anyone. Credit cards are unsecured debt, which means that it is comparatively easy for a bank to end up with nothing due to a deadbeat borrower. As such, it is very hard for a person with bad credit to receive a credit card.

Fortunately, however, there are some options for persons who have a bad credit rating and wish to rebuild their rating through the use of a credit card. The most common and most popular is the use of a balance-paid card. While similar in concept to the pre-paid Visa, MasterCard and American Express cards available in most big box stores, these cards operate on a different set of principles. Issued by banks, these cards require users to pull from a separate and established fund, similar to a debit card. However, they are treated as a credit card and behave in the same way, and the established fund is only drawn from at the request of the borrower. This enables borrowers to get used to paying off their bills and will penalize them for failing to pay in full and on time by charging them interest. It insulates the bank from risk as well, since the limit on the card is as high as the amount deposited, ensuring that the bank cannot lose any money since they will simply draw the account if the card is maxed out.

Another option is the use of a “high risk” card, which is issued to a person with a sketchy or irregular credit history. These cards have high rates of interest and very strict limits and fees, as well as a low credit limit. On the upside, they are fully functional credit cards and do not require buyers to hold an outstanding amount at a bank equal to the card’s maximum. These cards have a maximum that is generally between $500 and $1000, and a rate of interest that is at or near 30%. This is a very high interest rate, making the cards unattractive to persons who may not pay, however this interest is not incurred when a person pays off the bill in full on a regular basis. Many banks that offer these cards do so as part of a credit rating repair program, which includes methods and incentives to help the borrower pay off the card regularly and not rack up excessive debt. The high rate of interest, combined with an assortment of fees, makes the card unattractive to persons with good credit, however.

Persons whose bad credit stems from a lack of credit instead of a history of not paying bills should see if they can receive a “student” or “new account” card. These credit cards typically have very low limits, such as $500 or less, but favorable rates of interest. These cards are most commonly issued by local banks and credit unions and may require that a person hold in deposit more money than the maximum value of the card. These cards are intended to teach persons about responsible credit behavior and tend to have very low rates of interest despite the fact that they are “risky” for banks. Some of them can even be backed up by the bank account of a parent or guardian, making them ideal for parents who want to teach their kids about money or reign in their spending.

Another way to build up credit when having a bad credit history is to use a department store card. Many department stores such as Sears or JC Penny still offer in-store cards that can only be used and redeemed at that store. These cards tend to have low limits and high rates of interest but are open to almost anyone. Popular in the 1970s and 1980s among those who wanted to build up their credit rating in order to get a credit card, they are still available in some cases, although most department stores now issue Visa cards instead. Still, cards offered through such stores tend to be more willing to accept someone with a bad credit history, in exchange for permitting the use of punishing fees should they fail to pay on time.