Advantages of a Bad Credit Rating Credit Card

Credit Cards For Poor Credit Can Help Rebuild Credit Score

Nov 11, 2009 Neil Gunn

Despite the high interest rates charged on bad credit rating credit cards, there are distinct advantages to be gained by using this type of card.

On the face of it there may not seem to be many advantages to having a bad credit credit card but used properly this type of credit card can be used to rebuild a poor credit score.

The Best Credit Card For Poor Credit

The Internet is awash with adverts for bad credit credit cards, making the decision as to which one to apply for is a difficult one for borrowers. However before making the choice about which one to go for it’s important for people to step back from the process and check out their credit score with one of the three main credit reference agencies.

A credit report will show the level of missed payments, late payments and County Court Judgments (CCJs) and inevitably the more adverse entries on the report, the lower the person’s credit score. A low credit score has a knock on effect, the lower the score the more likely that the only type of plastic that can be applied for is a bad credit credit card.

Advantages of a Bad Credit Rating Credit Card

Bad credit credit cards, like most other financial products, come with a variety of interest rates, all considerably higher than a ‘standard’ credit card. However, used properly, this type of card can be used to improve a credit score.

Financial journalist Martin Lewis says that even for those who have incurred multiple credit card charges, defaulted on debts or had CCJs, it’s still possible to get a card for poor credit scores. However, he makes the point that anyone that has been made bankrupt in the previous 12 months will be rejected.

High Interest Rates on Bad Credit Credit Cards

Interest rates on a bad credit credit card can be frighteningly high, currently up to 39.9%, however this should not put people off. To get the maximum benefit from the card the monthly bill should be paid on time and in full every month. This means that it does not matter what the interest rate is.

By keeping the payments up for a year and making sure all the other bills are paid on time, the improved credit score will allow the bad credit credit card to be disposed of and one with a substantially lower interest rate used in its place.

Prepaid Credit Card – No Credit Check

Those who are rejected for the high interest bad credit credit cards might consider the prepaid credit card, which many companies will issue without credit checks. Prepaid cards are not credit cards in the real sense. They are more like debit cards because the money is loaded on the card before spending so it’s never possible to go over the limit. However, the card is still handy for things like Internet shopping.

Like a bad credit credit card, a prepaid card can be used to rebuild a positive credit score. Sometimes known as the “creditbuilder” process, it works this way. The issuing card company gives the consumer a small interest free loan; let’s say for example £60.

This loan is repaid as a monthly fee for the card over 12 months at £5 per months, so after 12 months the loan is repaid. This information goes to the credit reference companies as a completed transaction and will show up in a positive way when the next credit search is made.

This article is based in Journalistic research and does not offer financial advice

Source:

Martin Lewis moneysavingexpert, Bad Credit, Credit Cards, website accessed 11 November 2009

The copyright of the article Advantages of a Bad Credit Rating Credit Card in Mortgages/Loans is owned by Neil Gunn. Permission to republish Advantages of a Bad Credit Rating Credit Card in print or online must be granted by the author in writing.