Credit Cards for Bad Credit Cost Consumers More
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by: barrywaters
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Consumers are still spinning from the economic events of the last year and the impact on the credit industry. Lending standards have become more stringent, as banks and lenders are no longer willing to take a chance on risky borrowers. That means that those looking for credit cards for bad credit are having a tougher time qualifying for a new account. Better credit reports and scores are necessary to qualify for many new credit accounts. Long standing customers are not immune to the new credit standards either, as many have experienced an increase in rates and fees or had their lines of credit lowered. According to a Federal Reserve study, an estimated 45 percent of banks lowered maximum limits on the credit cards of existing customers in the last quarter of 2008. American Express is currently incenting some customers it perceives as risky to pay off their balances and cancel their accounts in exchange for cash. For its customers who carry large outstanding balances, Chase raised the required minimum payment from 2 to 5 percent. The maximum allowed limit for many customers of Citigroup have been lowered, simply because of the shaky economic times. Some consumers who have had their credit lines decreased now carry a larger debt relative to their available credit, which has adversely affected their credit scores. Other consumers are having to choose which financial obligations get paid first in these turbulent financial times, and credit cards bills often take a back seat to mortgage and car payments. As a result, there are more people who are now looking for credit cards for bad credit to help them through these times.
Credit cards help build credit scores and credit histories. And you cannot get more credit, unless you have some credit history. Those who have to obtain credit cards for bad credit now are all too aware of the importance of credit accounts that are in good standing. Many of them have no choice but to rely on credit cards that charge more fees and larger interest rates. These high rate cards allow the consumer an opportunity to improve their credit, assuming the bills are paid on time. Frequently, though, consumers are overwhelmed by the interest payments and fees and accumulate more debt and make their credit worse. A better option is a prepaid card, which offers all the convenience of a card. You can charge things on the card until the prepaid amount you established is gone. A prepaid card will not, however, help you build your credit. In lieu of opening new credit cards for bad credit, most financial advisors recommend that consumers pay off debts on their current cards and maintain the longest standing card. Accounts with a good status that you have had for a long time reflect positively on your credit score. Maintaining the history of your longest standing account and utilizing prepaid cards can empower you to build a better credit report and score. By doing this, over time you will be eligible for cards with more reasonable terms and can stop looking for credit cards for bad credit.
References Student credit cards -- Secured credit cards --
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