Prepaid Cards in Lieu of Credit Cards for Bad Credit
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by: barrywaters
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Word Count: 518
Consumers are still spinning from the economic events of the last year and the impact on the credit industry. Lending institutions have adopted much tighter lending requirements and are, consequently, turning away those consumers who appear to pose a higher financial risk. Borrowers seeking credit cards for bad credit are finding it more difficult to open accounts. Better credit reports and scores are necessary to qualify for many new credit accounts. Even existing customers are finding their credit lines decreased and changes to their interest rates and fees. 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. One of the major credit card companies, AMEX, is offering money to current cardholders perceived as a credit risk to pay the balance on their cards and close their accounts. 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. Others are simply struggling to make payments or defaulting on them, as they prioritize which bills get paid in the current economic pinch. More consumers, consequently, have had to look for credit cards for bad credit.
Credit cards help build credit scores and credit histories. If you do not have credit, you cannot obtain additional credit. Most consumers who are seeking credit cards for bad credit know how vital good credit is. They are often forced to obtain a card with higher rates and fees, due to their poor credit histories. These high rate cards allow the consumer an opportunity to improve their credit, assuming the bills are paid on time. More often than not, however, the high charges accumulated on the cards too easily allow the consumer to fall back into debt. A prepaid credit card is a less risky alternative. You can charge things on the card until the prepaid amount you established is gone. Unfortunately, the prepaid option does not give the consumer an opportunity to create or improve credit history. 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.
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