Establishing or repairing damaged payment credit can be a daunting task at best. It can be extremely difficult to find a company that is willing to take a chance on someone that has no prior payment history, whose payment history is limited or who has defaulted on any past financial obligations. That does not mean it is impossible. Many companies offer subprime credit cards to people with limited or poor credit.
Subprime credit cards are ideal for establishing or repairing damaged credit but they do not offer much as far as means for additional spending. The initial spending limit is usually fairly low, ranging between $200 and $300. While this might not seem like much, it is enough to help the issuing company determine how well a consumer can handle their account. If he/she pays on time every month, their limit may gradually increase as well as their credit rating. A lower spending limit also protects the company from a significant monetary loss in the event that the consumer goes into default.
While subprime credit cards can be beneficial they can also be very costly. The interest rates are usually significantly higher than normal because consumers with less than perfect credit are considered to be high risk. There are some companies that offer a low introductory initial interest rate but only for a limited amount of time after which it will increase significantly. Depending on the company, it could go as high as forty percent.
The fees associated with subprime credit cards can also be very costly. The annual fees alone can range anywhere from $25 to $79. You could also be charged several other fees in addition to the annual fee. These might include a one-time account set up fee that is between $29 and $59, a one-time program fee that is between $95 and $200 and a $7 or $8 monthly servicing fee. In most cases, all of these fees are deducted from the credit limit before the consumer even receives the card. Because the initial limit is usually very low to start with, that leaves very little, if any, for spending. It is wise to compare the rates and terms of each card before you apply so that you can get the one that best suits your needs.
If you are only looking to establish or repair your payment history, a subprime credit card might be the way to go. While most of your spending limit will be absorbed by all of the associated fees, you will still be making the required monthly payments which over time will improve your credit rating. It will not happen overnight. It takes time and discipline.
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