Debt and credit

Things to Know while getting a Credit Card with Low Credit Score

Many people identify credit card as just another tool to make your purchasing easier, but while used appropriately, it can be a lot more. When used properly, a credit card can be even an ideal tool for you to build a good credit history or revert your bad credit to a better score. Doing this will also help you to get further loans at favorable interest rates and also win cheaper insurance and better cellular phone plans. Credit cards may also help you to earn more reward points on your daily purchases, and many credit card providers may even help you by protecting the purchases made from damage or theft.

Put in simpler terms; a credit card could be your one-source solution to many issues at a time. If you are looking for your first credit card or applying for one at a bad credit score situation, this guide will help you in taking a better decision.

Know what a credit card does?

For many people, a credit card just seems like a debit card with the difference of using it without funds available in your savings. Instead of the funds getting removed from the checking out on making a purchase, you are ideally taking a short-term loan with a credit card. It may or may not accrue an interest based on the time-frame in which you pay it off.

Some credit card providers offer a grace period of 30 days initially. If you fulfill the payment within 30 days, usually there is no need to pay off any interests. However, if you pay lesser than the balance due, there will be accumulated interest to be paid off based on average daily balance.

For those who have a low credit score, credit card providers may be charging a higher annual fee or a higher interest rate to cover the risk. Usually, the special offers like a lock-in no-interest repayment period also will be limited in case of a credit card for low credit scorers.

Why credit card?

These days there are credit cards which are designed specifically to help build your credit score. These are called Credit Builder Credit Cards. As we had seen above, credit cards come with many benefits. The most important one among these is that proper usage of credit card will help you build positive credit. Good credit will help you to apply for a loan at any time and get it approved at the most favorable rates. It will also help to get an apartment or a cell phone connection easily. Individuals with good credit score also get benefits of lower insurance premium and also other fund advance options easily.

Many credit card providers also offer cash back and reward points, which can be redeemed against further purchases. The first cash back offers of many providers may go up to 5 to 10% of the total spend value. There are sign-up bonuses also offered by many reward cards which can be worth hundreds of dollars to use against travel or shopping. Almost all providers now offer a 0% interest period to the new credit card holders. The providers like The Firestone credit card doesn’t require a high credit score also get approval. Inquire about such benefits while applying for a credit card to ensure you get the best benefits through it.

Secured vs. unsecured credit cards

As discussed above, there are various types of credit cards, and two major varieties are secured and unsecured credit cards. In case of secured credit cards, the limit of the card limit is backed up by cash deposit in the account. This is one way for those who are with bad credit to apply for credit cards and enjoy the benefits the same as to those who are with high scores. The deposit acts as collateral, which reduced the risk for the provider in case of nonpayment.

However, secured credit cards are not the same as the prepaid purchase cards as many think. You don’t have to spend the deposit in the checking account against the credit card usage. Instead, you can make use of the card in the same way as of the unsecured credit cards. Only on failing to make the repayment in terms, your deposit gets affected. Once you cancel the secured credit card, you will get back the deposit, provided there is no defaulting amount.

On the other hand, unsecured credit cards do not need a deposit or any other collateral to be pledged. You can enjoy a credit limit based on the credit history and income level of the applicants. The issuers will take the risk by their own while approving unsecured cards. However, these cards may sometimes bear a higher interest rate and other fee tied to it.

An alternative to these, you can also ask the provider to add you to a relative’s or friend’s credit account too as an authorized user. With this privilege, you will be able to use the credit card by benefiting from the good credit habits of the primary cardholder, but you will remain obligated to pay off the balance on your own.

The grace period

Another major benefit of credit card is that is the payees get interest-free loans with a grace period of usually 15 to 30 days. So, here is how it works. Say if you have a credit card period from February 5 to March 4, and a due date of April 1. All the purchases made within this period could be interest fee until the payment data arrives. However, if you don’t pay the full balance before March 1, you have to bear the interest based on average daily balance.

The final consideration to make is of the interest. Many of the users think that the interest of credit card is based on the card balance at the due date, However, if you haven’t made the payment in full, you are bound to bear the interest average daily balance for the entire month. So, to avoid the accruing interest, you have to pay off the new balance on the credit card statement every month. Keep it even the minimum payment to maintain a better standing, but paying further interest is unnecessary if you only spend within your means.

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