Unsecured credit cards are often the first choice for people building their credit score. But as tempting as unsecured credit cards may be, there are some important factors you should consider before choosing them. First of all, unsecured credit cards generally carry a higher interest rate than secured credit cards. Unsecured credit cards are also easier to qualify for simply because they do not require a co-signor. Unsecured credit cards aren’t backed up by collateral such as a car loan or a house loan.
As such, they typically have less restrictive credit requirements than secured credit cards. However, they still don’t come without annual fees, and so you will continue to pay on time. And since they don’t offer any flexibility, it’s hard to find the best unsecured credit cards. If you have bad credit, then you probably know just how difficult it can be to find a card that offers a low interest rate and a long enough credit line. But even if you have bad credit, unsecured credit cards can provide you with an opportunity to rebuild your credit score.
As you may know, one of the major disadvantages of unsecured credit cards is that you are not protected by any type of collateral. This means if you make a late payment, for example, the company may repossess your card. If you have poor credit history, then unsecured credit cards may also put you in a worse position when it comes to obtaining employment. Many companies won’t hire someone who has bad credit. This may not sound like a big deal, but it can create quite a problem when you need a new job.
Unsecured credit cards offer some hope to people with bad credit. Now, you might be thinking, “What do these cards offer me? They won’t help me get a job or open up any new checking accounts, right?” Fortunately, this is not the case. Most unsecured credit cards will give you the opportunity to rebuild your credit score.
With unsecured credit cards, you will first be required to make a deposit. Make sure you understand what this deposit will be, because most companies will require this. The reason for this is to protect the card company from fraud. They will use the deposit to cover charges on your unsecured credit card account.
You will then be required to make monthly deposits in order to pay down your balance. This process will occur until your credit history has improved. You should aim to keep your unsecured credit cards at about thirty percent of their available balance, which means that you will have to make three to six payments each month to ensure that your balance remains below the one percent security deposit.
With secured cards, it is possible to enjoy rewards and perks such as travel points, cash back, and much more. Remember, there are often annual fees and charges. However, you will usually pay these amounts only once, instead of making them all at once. One of the biggest advantages of unsecured credit cards is that you will be able to avoid many of the annual fees associated with secured credit cards. These fees can prove quite costly, so it certainly is in your best interest to keep them to a minimum.
If you have bad credit histories, it is not impossible to find unsecured credit cards that offer benefits that you will actually appreciate. Remember, however, that you will be responsible for paying an annual fee in order to use the card. That fee can often be as much as half of your overall credit card debt! Therefore, it is important that you only use unsecured credit cards for things that you will actually use. If you have several cards, you will get a lower interest rate overall.