Having bad credit makes you the target for some of the worst credit card deals you could ever imagine. Many lenders won’t grant credit to consumers that have bad credit histories – those with serious delinquencies and maxed out balances. But there are some that will, with a whole lot of almost-invisible strings attached.
Subprime credit cards are intended for consumers with credit scores lower than 620. To a credit-starved applicant, getting approved for any credit card is a godsend, even if the card robs you in fees.
What could possibly make a credit card so bad? Let’s start with a high annual fee. A few bad credit credit cards, like the Aspire Visa, have ridiculously high annual fees. We’re talking about a $150 fee that’s charged to the card before you ever make purchases with it. Usually, there’s no opting-out, you have to pay the fee whether you use the card or not.
These credit cards designed for people with bad credit come with a few other fees. Application fees, account establishment fees, fees for credit limit increases, and fees for additional credit cards aren’t unusual. The problem is that many of these fees are front-loaded onto the card when you receive it. You already owe them plus the annual fee.
To make matters worse, these subprime credit cards often have low credit limits. When I say low, I mean like $300. A low credit limit isn’t a bad idea for someone who’s trying to reestablish their credit habits. It’s manageable, but keeps a tight leash on the cardholder. However, initial fees slash the available credit to $150 or less, leaving the cardholder without much room for purchases. Especially if he doesn’t want to hurt his credit score even more by having a high credit utilization. Level of debt relative to credit limits – credit utilization – counts for 30% of each consumer’s overall credit score. A credit utilization lower than 30% is best. The Aspire Visa, and similar bad credit credit cards, leaves you with a 53% utilization and you don’t have anything to show for it but a piece of plastic.
Check the terms of the card for a minimum APR. Some bad credit credit cards add this clause to be able to charge you a high interest rate no matter what. A high minimum APR means you’ll never have a competitive interest rate on that card. You’ll always have high interest charges if you carry a balance on the card.
The government is working to stop these predatory creditors. In June 2022, the Federal Trade Commission (FTC) filed a $200 million lawsuit against one subprime credit card issuer, CompuCredit. The FTC sued the company for failing to disclose that its $300 limit credit card would leave cardholders with $115 available credit after $185 in fees were charged. The same company previously entered an $11 million settlement with the New York State Attorney General for similar charges.
If you’re looking for a credit card, but you have bad credit, consider applying for a secured credit card. With a secured card, you make a deposit against your credit line. Your deposit is kept in a savings account until you qualify for an unsecured credit card or you close your account. Many secured credit cards report to the credit bureaus, so using your card responsibly will help improve your credit.