Having bad credit can make it difficult to qualify for a credit card. Fortunately, there are options available to those with less-than-perfect credit, including unsecured credit cards. In this article, we’ll explore what bad credit is, why it matters when applying for credit cards, and what unsecured credit cards are and how they work.
Part 1: What is Bad Credit?
Bad credit is a term used to describe a person’s credit history when they have a low credit score or a history of missed payments or defaults on loans or credit cards. Credit scores range from 300 to 850, and a score below 580 is generally considered “poor.” A low credit score can make it difficult to qualify for credit cards, loans, and other forms of credit. It can also result in higher interest rates and fees for those who are approved.
The factors that contribute to a person’s credit score include payment history, credit utilization, length of credit history, types of credit used, and recent credit inquiries. Payment history is the most significant factor, accounting for 35% of a person’s credit score. This means that paying bills on time is crucial for maintaining a good credit score.
Part 2: Why Bad Credit Matters When Applying for Credit Cards
Credit card companies use a person’s credit score and credit history to determine whether or not to approve their application. Those with poor credit are often denied, as credit card companies view them as higher-risk borrowers. However, some credit card companies offer unsecured credit cards for people with bad credit.
Part 3: What are Unsecured Credit Cards?
Unsecured credit cards are credit cards that do not require a security deposit to be approved. These cards are typically targeted towards people with bad credit who are looking to rebuild their credit score. Unsecured credit cards can be used for purchases and cash advances, just like traditional credit cards.
Unsecured credit cards often come with higher interest rates and fees than traditional credit cards. This is because credit card companies view those with bad credit as higher-risk borrowers, and they want to offset that risk with higher fees and interest rates. Unsecured credit cards may also have lower credit limits than traditional credit cards, which can make it difficult to make large purchases.
Part 4: How Unsecured Credit Cards Work
To apply for an unsecured credit card, a person must typically fill out an application online or through the mail. The application will ask for personal information, such as the person’s name, address, and social security number. The credit card company will use this information to check the person’s credit history and credit score.
If the credit card company approves the application, the person will receive a credit card in the mail. They can then use the credit card to make purchases and cash advances, just like a traditional credit card. The credit card company will send a monthly statement showing the person’s balance, minimum payment due, and due date.
It’s important for those with bad credit to make payments on time and in full each month. This can help improve their credit score over time. Making only the minimum payment or missing payments can result in additional fees and damage to their credit score.
Part 5: Pros and Cons of Unsecured Credit Cards
Unsecured credit cards have both advantages and disadvantages. Here are some of the pros and cons:
Pros:
Can help people with bad credit rebuild their credit score.
Do not require a security deposit to be approved.
Can be used for purchases and cash advances, just like traditional credit cards.
Cons:
Often come with higher interest rates and fees than traditional credit cards.
May have lower credit limits than traditional credit cards.
