Instant approval credit cards for bad credit are a welcome relief
Imagine going back into the past – a world without credit cards. You cannot buy your airline ticket or pay for anything online. Worse still is when you get to a gas station and you must fill the tank and pay in cash.
There are many other examples, but they all boil down to one thing – convenience. Credit cards offer us quick and convenient ways to pay for goods and services. Besides, plastic money is safer than carrying loads of cash. On average, every adult American citizen has five cards in their possession.
The chances are that you too have got one. Otherwise, you would not bother to read this piece. On the brighter side, be glad that you have got a card you can use. Technology has also made it possible to transact with credit cards via a mobile app.
Thirst for customers, the driving force behind credit card business
Credit card dealers are in a cut-throat competition that targets people like you. They want you to give them business. Towards this end, they are ready to dangle juicy carrots in the form of rebates and rewards.
According to consumer research organizations in the US, card issuers spent $10.3 billion worth of bonuses in 2006. Industry researchers projected the reward expenditure to hit $18.4 billion in 2010.
Even without quoting what the figures for 2018 would look like, you can begin to see the extent to which credit card companies are willing to go to ensure that every holder receives compensation. By playing your cards right, you can benefit immensely from these tempting rewards.
A loan, by any other name, is still a loan
Whenever you utilize your credit card, you borrow money from the financial institution that issued the card. At the same time, when you charge an item against the card, the issuer pays the merchant.
To complete the transaction, you pay the bank later. That moment when you signed up for the credit card, you committed to pay back the amount borrowed plus interest. Besides, there are accrued finance charges on the owed amount. In short, a credit card is a loan just like any other.
Worried about a poor credit score? No need to feel this way
A poor credit status may sound like a death blow to your financial condition. Bad credit leaves you with almost no options for acquiring a credit card. One can understand why this is the case. To understand why credit card issuers do not want to be associated with such people, imagine getting into the morning commuter train with dirty, sweaty overalls.
Commuters will most likely move away. Seeing that you look unpleasant, no one will want to share their space with such a person. Credit card companies are afraid that with your financial status, you may not pay them back.
Credit cards for people with weak, low or bad credit status
Fortunately, all is not lost as there are vendors who are willing to issue credit cards to people with bad credit. Despite the limited options available, you could still get cards which if you make responsible use, could help rebuild your credit.
Examples of such cards include:
Capital One Secured MasterCard
Despite having an APR of 26.99, the Capital One Secured Mastercard has no annual fee. However, you must place a security deposit. Once you pay the deposit, the issuer gives you a $200 credit line to start you off.
Moreover, if you keep your monthly payments consistent for five months, you qualify for an increase in your credit line limit. The good thing is that the card issuer refunds the deposit once you stop using the card.
Besides, your creditworthiness is the determinant for deposit. Capital One allows you to pay the deposit in installments. Another plus is that you do not pay any charges on foreign transactions.
Indigo Platinum Mastercard
Here is an ideal card that you can use when struggling with bad credit. You can sign up with a FICO score of 600 and below.
The prequalification process is easy plus you can use the card at more than 35 million outlets globally. You can check for prequalification in advance without any effect on your credit score.
However, unlike other cards in the ‘bad credit’ category, there are no rewards for using an Indigo Platinum Mastercard. Nonetheless, with responsible use, you could end up building your credit history.
Credit One Bank Unsecured Platinum Visa with Cash Back Rewards
If you are seeking to rebuild your credit score, the Credit One Bank Unsecured Platinum Visa card is the most ideal. As a holder, you get to access your credit scores every month. Also, the issuer provides credit education which you will find helpful under the circumstances.
Besides, you get an unlimited chance to earn your cash back on grocery and gas purchases at one percent of the spend. However, some stores such as Target or Walmart do not offer cash back bonuses on this card.
Also, APR is high, an aspect that goes against the spirit of helping users rebuild their credit scores. The issuer deducts their annual fee directly. If you are not keen, the deduction may catch you unaware.
Milestone Gold Mastercard
Unlike other cards, you do not pay a security deposit on the Milestone Gold Mastercard. On the flip side, the card comes with a high annual fee that varies depending on your creditworthiness. At the same time, you have no chance of recovering your investment in the card.
You see, in other circumstances, you pay a security deposit and recoup it through improved credit. Another problem with this card is the difficulty you will experience in your quest to rebuild your already dented credit score.
Despite enjoying a credit limit of $300, you end up using a huge chunk of it to cover the annual fees.
Discover it Secured
Owning a secured credit card requires you to place a deposit which acts as your collateral. If you are searching for one that comes loaded with a rewards program, the Discover it Secured is a perfect choice.
There are no annual fees to worry about, plus you only pay a minimum security deposit of $200. The good news is that you will get back your deposit money. For your first $1,000 worth of purchases in every quarter, the card gives you a cash back of two percent (2%).
As you progress, Discover reviews your card automatically. Eight months down the line, you could qualify for an unsecured card.
Advertiser disclosure may not give you sufficient information about the credit cards available. Like we saw earlier, the competition to attract and retain cardholder is quite stiff. To obtain a card that best meets your requirements, ensure that you review the terms and conditions given by the issuer. Let your current income and budgetary requirements be the guide.
Dwindling options alongside a dented image
When your credit rating goes from bad to worse, your options for using borrowed money reduce. The same thing goes for credit card companies. A bad credit score gives you a bad image, and the society looks down on you. Sadly, credit problems take time to eradicate. Your ability to sustain a strong history of creditworthiness is critical.
Treat credit in the same manner as you do with employment. You would never want to joke with your work. If you do, the employer will terminate your services, and it might be a long time before you secure another job. Never take borrowing a loan or obtaining a credit card lightly.
Clawing back and regaining your credit status
Servicing your loans is the toughest part of the consumer journey. The way you make payments to your lenders determines whether you can get more loans in the future. Timely repayments go into your credit history. You are telling lenders that they can rely on you to pay back as agreed.
They see you as someone that is responsible and dependable. Players in the credit industry observe borrowers carefully. Consistent and timely payment helps you build a reputation as a creditworthy person. Occasionally, you might get late.
Despite the understandability of what causes delay, the credit industry has a different perspective. The system brands you as a late payer and your actions will influence whether in future your application for credit gets reviewed, approved or otherwise.
Skipped payments and why you should not get to that level
Skipping payments has severe repercussions on your credit history. Always remember that each time you take out a loan, you are under the obligation to pay it back according to the terms set by the card issuer.
Difficulties arise that render it difficult to meet the monthly or weekly payment. If you reach such a point or foresee trouble, the most prudent thing is always to notify the lender. Instead of skipping a payment, request the lender to give you an extension.
Failure to do so will see your account going into a late status an aspect that also attracts hefty penalties.
Once approved or otherwise endorsed, the lender pushes the loan maturity date forward by a month or two. Later, you organize yourself and catch up with your monthly payments. Loan officers are human beings too and do not have an issue in granting extensions.
Besides, they are aware that everyone does hit a rough patch from time to time. However, do not make it a habit to keep absconding on your payments.
Credit card issuers, banks, and other industry players
Bank credit cards are the most common type of open account credit. Apart from banks, other institutions issue credit cards too with the dominant ones being MasterCard and Visa. With these two, you can charge your purchases at gas stations, shops, restaurants and stores located within the United States and abroad.
Plus, you can use your card to transact via the internet. With a credit card at hand, you can buy goods and services or borrow money. However, the financial crisis that hit the US recently has resulted in the tightening of standards in the issue and utilization of credit cards. One of these is the requirement for more vigilance of an individual’s credit history.
Sneak peek at recent legislation – The Credit Card Accountability Responsibility and Disclosure Act of 2009
Following the enactment of The Credit Card Act of 2009, card companies must now send your statement 21 days before the date your debt falls due. Also, the fees for being late on a payment is $27 but only if this was your first time. If you delay again for a further six months, you are eligible for a late fee of $38.
Besides, card issuers must notify holders of any changes in their rates of interest at least one and a half months (45 days) in advance. Another critical aspect of the act is that card issuers must exercise due diligence by determining your ability to pay before they extend credit facilities.
They must carefully review your sources of income and examine your debt obligations.
When you have bad credit but still need to get a credit card
Being a credit card applicant against a backdrop of bad credit is not easy. Credit card companies are always cautious since they are doubtful of whether you will pay back. Bad credit refers to the scenario where your borrowing and repayment history places you among people considered as having a high risk at securing credit. For any individual, being branded as having good or bad credit depends on numerous factors. Some of these include:
- How much you owe to your lenders
- Availability of credit
- Whether you pay debts on time or not
If you default on a bank loan, for instance, you will end up with bad credit. A similar fate awaits you for failure to maintain timeliness when paying back what you owe. Delayed utility payment also puts you in the spotlight. Under such circumstances, financial institutions and other lenders often refuse to give you loans.
Before they can advance you cash, banks and other financial institutions assess your creditworthiness. They do so with the help of the FICO credit score. Equifax, TransUnion, and Experian maintain accurate information which they provide to the Fair Isaac Corporation (FICO) who use it to arrive at a score.
The company carries out this task for every adult in the United States. From the FICO credit score, lenders can tell whether you are creditworthy or not. While carrying out computations, FICO assigns most of the weight to your payment history.
The range of credit scores as computed by FICO is from 300 to 850. On average, Experian estimates that borrowers with a score of 579 and below are in the bad credit category. The credit bureau further opines that out of all borrowers in this range, 61 percent have a high likelihood of default. Also, any loans taken by individuals in this category are likely to become delinquent. A fair score falls between 580 and 669.
FICO scores, credit cards, and loans
If your FICO score is between 300 and 579, then you are in the poor credit category. You cannot qualify for mortgages, credit cards or car loans. However, if you have never borrowed money before, you may consider signing up for a secured credit card.
All that it requires is for you to deposit some cash as security. After making the deposit, the card issuer then proceeds to place a spending limit. After the expiry of the period agreed upon, you should pay back what you have spent plus an additional amount based on the interest rate. The spending limit cannot exceed your initial deposit on the card.
Upon failure by a cardholder to make payments as promised, the lender recovers the same from your deposit. Through a secured card, you can build a credit reputation that will come in handy in the future.
A poor score need not condemn you into an abyss
A poor credit score does not necessarily mean that you are a borrower that cannot be trusted to pay back. Sometimes the information contained in your credit report could be erroneous. You are the only one that can cross-check and ascertain that you have the credit report with the correct reflection of your status.
Carefully go through the status of your credit, noting down anything you feel is incorrect. Once you do, you can now embark on the dispute process. If you like, you can request your credit report at any time, but you must pay a processing fee. Alternatively, you can obtain a free report from the three bureaus, Experian, TransUnion, and Equifax.
Credit cards are a necessity and a way of life
As an American, having a credit card in your wallet is a part of life. The Federal Reserve approximates that 74.9 percent of the households in the US have one or several credit cards. On average, each household pays between $7,000 and $8,000 worth of credit card debt. Without doubt, credit cards are more convenient than carrying cash. Besides, nearly every outlet that you visit accepts credit cards.
A card transaction has several touchpoints. After buying goods or consuming a service, you flush your credit card and present it to a merchant. The seller swipes the plastic card on a device that electronically captures the transaction. Upon receipt of purchase information, the card issuer remits payment to the merchant.
Understanding how these instruments of credit work
Meanwhile, the issuing bank maintains a record of every purchase or payment made using the card. Later, the issuer sends you a statement detailing your status plus interest charges for the service. In the bill you receive, you will see a breakdown of your activities and how much you spent.
There is also the minimum payment that the creditor expects. Every time you use your card, you are taking a loan from the issuer. Each time you pay for an airline ticket, laundry, medical care or a hamburger, you get into debt. To remain on track, you need to repay the loan every month. Delays in payment or exceeding the credit limit can and will damage your credit score.
Debit and credit card unpacked – similar yet different
A debit card is also an instrument of convenience. The mode of operation for both debit and credit cards is the same. Both bear the name and logo of the issuer, and you can use them to pay for goods and services.
The only difference is in the source of the funds when you pay for a purchase. In the case of a debit card, each time you swipe it at an outlet, there is a debit in your checking account. On the contrary, when you use a credit card, the transaction gets charged to your line of credit. Later, mostly at the end of the month, the card issuer bills you for all purchases made.
To wrap up
Credit cards are instruments of debts while debit cards are not. In the former, you are only borrowing money that you will pay to the card company. For the latter, you use money that is already in your bank account. The only exception is the transaction cost charged for processing your transaction.
These differences notwithstanding, both debit and credit cards significantly impact how and where products reach consumers. Contrary to what you may have believed, instant approval credit cards for bad credit do exist. You need not to be ashamed of your present credit status. Nothing should stop you from leading the life you desire.
Alex is a former budget manager turned entrepreneur. He works mainly at home on his credit score advice website and writes a financial blog on the side. He hopes to expand his business into a full online lending company for bad credit as soon as he gets enough investors.