When you have bad credit or filed a bankruptcy for options for regaining credit are limited. You may not think that you have a lot of options available to you. Once it's out there that you have bad credit you will get advertisement in the mail for people with bad credit. They may be for credit cards, car loans, or even mortgage help. You don't have to settle for the first offer from a bank with credit cards for bad credit.
I was recently reading an article about First Premier bank. They are a bank that specializes in credit for people with credit challenges. Their premise is that they are helping you to rebuild your credit through using one of their products. They are now offering credit cards with 79.9% interest rates for consumers with bad credit.
Source Yahoo Finance – Bank defends 79.9 interest rate credit card.
I was really shocked that after the credit card reform that there would be credit cards out there for people with bad credit like this. There are other companies including Credit One, HSBC and Orchard Bank that offer programs like First Premier.
The bank can't charge you the over limit fees and the late payment fees that they did before the reform. The new fees include a setup, program, annual, and monthly service fee. These fees are structured according to the bank because of the risk they are exposed to from people with bad credit. The bank philosophy is that you will probably make the same mistakes with your credit that you did in the past. So you should be continually punished for your past mistakes. Credit cards for bad credit should offer a sliding interest rate. To allow you to pay less interest as you demonstrate that you have a handle on your finances.
The banks are saying they want to help you rebuild your credit, yet they have found a way to make large margins of profit off of people that have bad credit. These types of credit cards leave people in bondage. Yes some people will continue their bad habits when it comes to misusing their credit. Others may learn their lesson or their life circumstances may have changed for the better. Putting everyone in one boat means that everyone will probably drown.
The logic behind this and many other credit cards is not to let you have to much credit since you have had problems in the past. Not everyone with a 640 or lower credit score has had credit problems in the past. We all start somewhere when it comes to having credit for the first time. The bank is also relying on the fact that people become desperate once they have bad credit. When you sign up for a credit card of this type you are signing yourself up for failure. The monthly payments will be very high if you leave a balance each month. Which means you only need to charge what you can payoff as soon as the bill comes in.
This type of credit card for bad credit I would not recommend to anyone. When other creditors run your credit and see that you have an account with one of these banks they will mark you as being high risk. You probably will be denied credit with the new creditor.
I think that banks take a greater risk of giving someone $25K and up in a credit limit that may not ever get paid off in this life time or the next. When you are given enough credit limit to purchase a new car with a credit card it could be a recipe for disaster. Many people will take full advantage of this type of limit to keep a certain lifestyle or appearance there of that is based solely on living off their credit cards. I have a client who wanted to make sure her daughter had a really nice wedding and reception. She financed the whole thing with her credit card. Mind you she is not a person still out in the workforce. She is retired on a fixed income. She may end up paying for her daughters wedding until she dies. When she was making all the charges for the wedding she had no plan to pay off this credit card. This was not the first time that she had made a major purchase like this. She informed me that she picked up this habit while she was working. She could work a little overtime or take her tax refund to pay down on the balance.
It can be dangerous for people to have these types of limits. The tendency for many people is that I can pay it off later. What happens if you lose your job? Or you spouse loses his or her job? The death of a loved one can occur. There are a wide range of events that can happen that can change your life in an instance. Just because the credit is available does not mean you should use it.
I think that banks if they are going to offer you credit cards to help you rebuild your credit should offer you tiers for the percentage rate. As you reach certain plateaus of a credit score and months of positive pay history your interest rate should be lowered. That way people have something to work toward. I understand that banks are in the business to make money. If a person makes no progress the interest rate stays high. I believe that you would really be helping people rebuild their credit.
Once you have bad credit it seems impossible to rebuild your credit. The rebuilding process will take a plan. I do recommend that you get a credit card from your local credit union. Credit unions are more forgiving than the typical bank. Many of them offer programs to help you rebuild your credit with them. These programs may include credit cards, lines of credit, and car loans. They also offer classes to help you with understanding your credit and using it wisely. Check out your local credit union today.
Whatever path that you choose do your research before you sign up for a credit card with 79.9% interest rate. You are worthy to rebuild your credit. You do not have the live with the stigma of having bad credit for ever. Throw the applications from credit cards for bad credit in the shredder.
Your financial coach,
Renee Lawson
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