Nowadays, where good credit history is a must to apply for loans or credit cards, people with bad or no credit often find themselves going from one company to other, in the hope of acquiring a credit card. However, this situation is slowly changing with the emergence of unsecured credit cards.
If you have an average or good credit rating, you might choose the conventional way and get a secured credit card. Some people may also opt for prepaid credit cards, which essentially prevent you from going into debt. However, secured cards demand either a collateral, security, or deposit. Prepaid cards, on the other hand, do little to improve your credit score. If you have no credit, then your first priority should be to build a good credit history so that getting loans in future becomes easier. Unsecured credit cards work best for people who have a poor or no credit score at all. Applying for this is easy and you do not need any security or deposit to be eligible. Some issuers specialize in issuing credit cards to such people. However, before you think of applying for such cards, you may want to review the pros and cons.
Pros and Cons
The biggest advantage is that you do not have to make provisions for security or deposits. Moreover, you are presented with an opportunity to build a good credit history. If you pay your bill on time, then your rating will gradually improve. However, since unsecured cards impose a high risk to the issuing company, you are often forced to pay a higher interest than other cards. Besides, you are often required to shell out several hundred dollars towards various convenience charges, processing fees, application fees, annual fees, etc. Additionally, you will also be charged an extra USD 5 to USD 10 towards a monthly fee. Thus, the higher interest rates and several extra charges make this a costly affair. However, if you have a steady cash flow that can enable you to make timely payments, then you might as well go for these cards.
Factors to be Considered while Applying
You might have come across lucrative advertisements selling credit cards for people with bad or no credit history. All of these advertisements promise attractive payment options and lower interest rates. However, you need to be very vigilant with whom you deal with, since fake issuers are on the rise. Also, check for hidden charges, if any. Low Annual Percentage Rate (APR) is yet another thing you should look for while applying. Similarly, go through the list of various fee heads and their respective amounts. One of the most important things to consider is whether the company reports card activity to credit bureaus. You ought to find a card company which reports to any of the three bureaus (Experian, TransUnion, and Equifax) so that your credit score is created, as this was the main purpose.
Next, make it a habit to build a good credit history. Eventually, this will make you eligible for a secured card at lower interest. It will also facilitate the process of acquiring a car or a home loan in the future.
Unsecured funds of any type should only be seen as a temporary option. No matter which card you choose, make sure to focus on building your credit. This means always paying your bills on time and avoiding an outstanding balance from month to month.