A subprime credit card is a card that people with a bad credit score can obtain and slowly rebuild their credit in that process. It’s considered a “normal” credit card for them considering that they aren’t qualified for other cards. Some subprime cards will come with the normal perks like a cash back advance or a rewards program.
Subprime cards have a higher interest rate for their higher risk for the borrower. Some features will include a reduced credit limit and straight forward deposits. However, keep in mind that there are lots of pros and cons to owning a subprime credit card.
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Pros & Cons of a Subprime Credit Card
Before you invest into a subprime credit card, you need to really understand what it can do for you. There are many ways a person can become a subprime borrower like filing for bankruptcy protection. Being bankrupt will really affect a persons credit score and cause it to plummet downhill.
A subprime card has many more restrictions than your traditional credit card. In order for a subprime credit card to protect the borrower from bigger risks, these restrictions will come to play. Being a subprime borrower does come with large risk factors like higher interest rates and account charges. However, if you use a subprime card with good practices, you’ll be able to build your credit score in no time.
Some advantages to using a subprime card is that you can get into the habit of paying for monthly balances. Plus, when your credit is built up enough, you’ll be able to start using an actual credit card. But, there are lots of disadvantages you’re pinned against when you use a subprime card.
Majority subprime credit cards won’t offer you rewards or welcome bonus offers for their accounts. They can even carry a large APR rate that can cause some issues if you need more time to pay your bill completely. Not to mention, a secured card can be a little irritating considering you’ll need to put down a security deposit beforehand. Remember, all of these restrictions are here because subprime users are labelled as “risky candidates.” Normally, the issuer will have higher penalties and reduced rewards.
Prices of Subprime Credit Cards
Applying for a subprime credit card can already cost you quite a bit. Normally, you’ll have to pay the processing fee, annual fees, and a monthly service fee. Depending on the type of subprime card you get the prices will vary. These prices are already pretty high, then you will have to pay for another annual fee the following year that will differ. Don’t take these fees so lightly, most subprime credit cards come with abnormally high charges.
Keep in mind that companies sell subprime cards in place of “owning a normal credit card.” But, by doing so, it will drain your pockets of cash considering it will cost you an average of $400. That doesn’t even include rather or not if there’s security deposits, a highly secured, partly secured, or not secured credit card. Normally, the amount that you deposit into your account will amount to the credit that’s available. There are many factors to look into when you’re looking for a subprime credit card to purchase and invest into.
Even though getting a subprime card will allow you to rebuild your credit score, the card will get harder and harder to pay off with their increasing rates and fees. Keep an eye out for any signs that show you the card is overly priced. Look at the fees you have to pay in the first year of having the card with the annual fees. If it adds up to about 25% or more of the credit limit then I would recommend checking a different subprime card out.
Other Alternatives For a Subprime User
Being a subprime user can be difficult to get a decent credit card, but there are other options that you can consider. If you have a bad credit score and are seeking for a credit card, a secured card from a mass-marketing issuer isn’t a bad idea. They are always working on bettering their card for users that are unable to get a good card.
An example of a great secured card is the Capital One Secured Credit Card. It will enable you to rebuild your credit, comes with rewards programs, and lots of perks you will benefit from. However, even if this card comes with an annual fee, it’s less than the normal annual fee you’d get with a different card.
Another great personal credit card for a subprime user is the Discover It Secured Credit Card. This card will come with no annual fees and has exceptional rewards systems and ways for you to rebuild credit. It will come with a free FICO, and cash back programs that will help you out in the process.
Conclusion
All in all, you should consider all your different options before getting the a card. Getting a subprime credit card is a good choice if you’re willing to pay for all the fees and charges it comes with. Remember, there are lots of negatives that comes with a subprime credit card that you must be aware of. It will help you rebuild your credit and give you other perks, but keep in mind that there are other substitutes for a subprime credit card.
Eventually, you’ll be able to build your credit up enough for you to actually get a better traditional credit card. Investing in a subprime credit card will help you practice how to use a regular card in the future.
