Instant approval credit cards for bad credit have all but disappeared, since credit card companies have become wary of extending credit to consumers with less than perfect credit. In the aftermath of the sub-prime crisis, lax lending practices were outed by lenders extending both revolving and non-revolving forms of credit. Today, both mortgage lenders and credit card companies are reluctant to provide credit to consumers with less than satisfactory credit scores.
Are Instant Approval Credit Cards for Bad Credit Still Feasible?
Instant approval credit cards for people with bad credit are not easily accessible to consumers since these cards are unsecured. In the event of the consumer failing to make good the payments on the credit card, the credit card company has no option but to contact the consumer and force the latter to make the necessary payments. If the consumer refuses to discharge his/her obligations, the credit card company may sue the consumer and get a writ of wage garnishment. This writ will enable the company to withhold up to 25% of the wages of the consumer. If the consumer’s wages are already being withheld due to other garnishments, say for child support, the credit card company may find it difficult to recover the credit card debt. The other alternative may be to turn over the debt to a debt collection agency. This may, however, force the consumer to file for bankruptcy. If the consumer files Chapter 7 bankruptcy, the credit card company may be able to recover at best 50% of the dues since Chapter 7 absolves the consumer from discharging debts that cannot be requited. The best strategy for the credit card company is to engage in negotiations with the consumer and try to settle for a reasonable amount.
Why were Credit Cards with Instant Approval for Bad Credit a Hit?
These credit cards were desired by consumers who had bad credit and found it difficult, if not impossible, to get approved for unsecured credit cards. To the great delight of the consumer, credit card companies worked out a system of instant approval. The consumer would receive an instant response after completing an online application form. He/she never gave a thought to the fact that instant approval was contingent on good credit ratings.
From the perspective of the credit card company, the consumer was an ideal candidate for high account set-up fees, high annual fees, and exorbitant annual percentage rate, the reason being that each of these variables are inversely related to the credit score of the consumer. Moreover, the consumer could be charged an over-the-limit fee despite the credit card company allowing the consumer to charge more than what was initially intended. Of course, who can forget the variable interest rate balance transfer fees that were levied on allowable balance transfers. All this added up to the consumer’s tab while benefiting the credit card company in terms of additional fees.
The above-mentioned fees and unjust interest rate hikes have been clamped down by the ‘Credit Cardholders’ Bill of Rights’, that was signed into law in May 2009. It will suffice to say that the law has resulted in reducing the credit limit and increasing the multitude of credit card fees, since the law prevents credit card companies from unfairly hiking interest rates after the consumer gets approved for a credit card. Thus, instant approval credit cards for bad credit are no longer worth the effort from the perspective of both the consumer and the credit card company.