Those who have had a bad credit history often find it hard to get credit. A bad credit history reflects poorly on the creditworthiness of an individual. A lower credit rating or FICO credit score means that the better credit cards and reward programs are not offered to such customers. There are, however some credit card issuers and some specific credit cards that are offered to the customers who are having a bad credit history. These credit cards are the only option for such customers in trying to rebuild their credit scores. However, there are quite a few problems that such credit cards bring as well. Customers have to be careful about these credit cards as they can get them into further trouble.
High interest rates
High interest rates are the biggest problem of credit cards for bad credit history. The APR on these credit cards is quite high, reaching as much as over 25%, to justify the risk in lending to credit card customers with bad credit history. From the customer`s perspective, this could mean a lot of interest. If the outstanding balance is 1000 dollars, and you don`t do anything to pay it off, you will add another 250 dollars by the end of the year even if the minimum payment is being met. These high interest rates keep increasing the outstanding balance.
Credit cards for customers with a bad credit history are known for charging hidden charges. These could be of all types. Late fee is now restricted by credit card laws, although that could still keep adding up to the balance. There are various other types of fees, these includes; application at the initial application and inactivity fee for non-use, all of which reduces the available credit the customers. These hidden charges are something that cannot be negotiated, and credit cards for bad credit, are known for sneaky charges.
A lot of people make purchases on their credit cards in order to gain rewards which are usually not available for people with bad credit. Building ones credit history is the only benefit that is offered, but customers, have no real incentive to spend while using these credit cards. The lack of rewards literally means you could spend with cash rather than taking the risk of paying an interest over and above the charges you pay.
Annual fee could be quite high on some credit cards which could add on to the outstanding balance. For those trying to use credit cards for bettering their credit history, the annual fee reduces the credit available to them. This adversely affects the credit history because of the lowering gap between debt and credit limit. There is a finance charge for keeping balance beyond the grace period available for payment. There is cash advance fee which could be high if customers use cards to withdraw cash.