Unsecured Bad Credit Credit Cards - Godsend or Sub Prime Lending Racket?

You and I know having a credit card these days is almost a necessity. But what if you have bad credit - how can you get a credit card? Imagine, trying to rent a car, book a hotel room, purchase something on line or take a vacation without a credit card. Unsecured bad credit credit cards may be our solution.

But, are they?

There are two types of credit cards on the market. You have secured credit cards and unsecured credit cards. Secured means that the lender has collateral in case you do not pay.

In fact you and I have to secure the credit card against our home or more typically we give the credit card company money in advance that they hold in case of default. This may require $750 upfront for a $500 credit card.

Although this is obviously not ideal, it can help you and I rebuild our credit history.

The second type is an unsecured credit card. This means that the lender has no collateral. These are definitely available... but for the credit challenged...are harder to get approved for and carry obscenely high interest rates unless you have a great credit history.

The unsecured bad credit credit card will typically come from sub prime lender. These are lenders that specialize in lending to people with bad credit. They take the risk knowing full well they will get very high interest rates. In the long run they make more off of the high interest rates than they lose on those who default.

Imagine paying 30% on a $2500 credit line...Ouch!

The other thing to look out for with unsecured bad credit credit cards are the mind blowing fees. Some of these sub prime lenders have it down to a science. They even predict that you will bring the card to its limit (max it out) and only pay the minimum payments.

The minimum payments are designed so that once you pay them and the interest is applied, you are over limit again and they then charge you an over limit fee in the neighborhood of $30.

Now, this is quite a racket isn't it?

The bottom line is that there are unsecured bad credit credit cards available on the market but please do your due diligence and read the fine print to see what exactly you are getting in to. However, there is a way you can avoid the sub prime credit market altogether by making a committed effort to improving your credit score.

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