Bad debt credit card
Credit cards are a common feature these days among the current generation, which is more inclined towards spending than saving. Live for the moment is the slogan of today?s youth and teen communities. The moment teenagers? step out of their nonage, they find access to most of the things that they once dreamt of owning or doing. Credit card is a coveted possession for many, primarily for the flexibility it offers in terms of spending ability. People no longer have to be concerned about empty wallets and a zero bank balance towards the end of a month. All they need to do is swipe a plastic card and presto! Their desire is fulfilled. Despite all the advantages of credit cards, a lot of people have had nightmarish experiences with their credit payments. One of the primary reasons for this is bad credit.
Credit Ratings
Since credit cards are a form of unsecured loans, banks and financial institutions offering these cards had to introduce methods to prevent defaults. Since there is no worry about losing an asset, unlike secured loans, a lot of people shirk credit payments. As a result, companies have had to incur huge losses. As a solution for this, credit card companies introduced the concept of credit history and credit ratings. Basically, when you default on your payment or the minimum payment, you tend to accumulate bad credit points on your credit history. When you are a consistent defaulter, you would lose the access to the credit eventually. Additionally, you would not qualify for another credit card. Since most of the business transactions have turned to electronic processing, you would lose access to the most convenient way of shopping on the net.
Credit Card Limitations
When there is an alternative solution for an activity, there is always a limitation. Credit cards might appear to be the best thing to have happened to the world of convenience shopping. However, it is also the easiest way for your debts to increase. If you resort to insensible and extraneous expenditure using your credit card, it is quite natural that you would find it hard to repay your debts. However, credit card companies have realized that this is not the case always. There have been instances when people have been unfortunate. A bad phase can make it difficult for a person to repay his debts. Fortunately, people with bad debts have a way out of this predicament. This has been made possible through the launch of bad debt credit cards. These cards are specifically aimed at people who have had a bad credit history, whatever may be the reason for defaulting on their payments. Moreover, this also offers an opportunity for people with a bad credit history to make amends. With these cards, they can improve their credit ratings. This is another important reason why companies have introduced these cards.
Bad Debt Credit Cards for Defaulters
Bad debt credit cards may come as a fresh lease of life to credit defaulters. However, applying for these cards may not be as simple as it sounds. To ensure that defaulters are discouraged from using this opportunity to evade payments again, companies have laid down strict rules and policies. These cards typically carry low credit limits in the beginning. Moreover, these cards have greater fees and interest rates than the regular credit cards.
Strict Rules
When you apply for a bad debt credit card, you may have to submit information that is more detailed than what you had provided for a normal card. The information could be related to your salary, your work history, etc. Unlike other cards, the submission of this information is a standard procedure that would ensure that there are no defaults in the future.
Secured Cards
Bad Debt credit cards are divided into two basic categories ? unsecured and secured. Secured bad debt credit cards are a lot like your prepaid credit cards. The secured cards are offered only when you pay a deposit, which is in line with the charges you wish to be applied to your credit card. For instance, you specify a drawing limit of $5000 on your credit card. This amount would be the payment you would have to make in advance to avail the card. Although this method is not in accordance with the credit card concept, it is a good way to improve your credit rating and clear your bad debt history. Moreover, you have the same convenience as other credit cards for purchases. Additionally, you have an alternative to hard cash in places that accept only cards.
Unsecured Cards
The second category of bad debt credit cards is unsecured credit cards. Although these cards function the same way as other regular credit cards, they are characterized by their low credit limits. With these cards, both the customer and the company are benefited. The customer regains a credit card and the opportunity to improve his credit history, while the company ensures that it doesn?t incur huge losses due to payment defaults.
Disadvantages
There are a few disadvantages to these cards, too. There are high annual fees, APRs and other hidden charges associated with these cards. Transaction fees on cash withdrawals are also on the high side. Hence, customers need to be very cautious when they use these cards or apply for one.
Since most of the bad debt credit cards are linked with a credit rating agency, you have a good chance of improving your credit rating. In doing so, you automatically qualify for another credit card. The primary objective of these cards is to increase one?s credit rating and clearing the bad debt history. Therefore, keep this objective in mind whenever you use the card or apply for one.
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