Stop us if you've heard this one before: some variation on the phrase "Bad credit? No credit? No problem!" The hucksterism inherent in such a promise, which is about as unsubtle as an unscrupulous salesman's tie, isn't as blatant now as it was in those ads of years past, but the goal is the same - making customers out of people who are financially irresponsible.
Unfortunately, they also attract people who are down on their financial luck through circumstances not entirely their fault.
"Costs associated with 'bad credit' credit cards will add up quickly."
This is certainly true of most credit cards directly marketed to those with insignificant or problematic credit. Let's examine the problems with these products, particularly their potential to make bad financial situations worse, and look at alternative credit solutions that won't cause such problems:
Fees, interest, more fees and more interest
Credit issuers primarily make money off of bad-credit customers through extremely high interest rates - 25 percent or more, in many cases - as well as a combination of annual, monthly and other fees. As NerdWallet pointed out, some of them are just barely compliant with the Credit Card Act of 2009, using caveats such as "processing fees" to avoid that law's cap on first-year annual use charges. All told, you can end up paying more than $150 a year in fees alone, to say nothing of the interest charges that add up and the principal balance.
The difficulties engendered by these high-interest unsecured credit cards don't stop there. Many will offer services like rewards points that are vaguely explained, or only apply in highly particular circumstances that rarely occur or are otherwise convoluted. Others promise grace periods but don't deliver, or are not upfront about how factors like potential credit increases, due dates or payment processing work. Any way you look at it, these cards are understandably tempting in a bind but ultimately destructive.
Potential alternate routes
Among the most commonly cited safe methods for rebuilding credit - aside from repaying amounts owed, which should be part of any debt management strategy - is a secured credit card. Deposit requirements protect the issuer, and timely monthly payments let credit bureaus know you're doing your best to get back on your feet.
Hard-working individuals hoping to reestablish credit should also consider utilizing the PRBC alternative credit platform. Being a member allows records of everyday payments to be factored into your credit profile: financial obligations that don't show up on FICO scores - ranging from monthly rent to utility and insurance bills - but constitute proof of income and fiscal responsibility when regularly made.
Bad credit doesn't have to be a financial death sentence, and PRBC can help you stay on track to credit recovery.