Credit Cards for People with Bad Credit

The economy is bad.  Things may be getting better, but things are still tough for many people.  In this circumstance it is not uncommon for people to turn to their credit cards and run up additional debt.  If you are struggling to keep your head above water, here are some tips on how to best use credit cards for people with bad credit.

• Budget — It’s not something many people enjoy doing, but having a good understanding of how much money you earn versus how much money you spend on necessities (food, utilities, housing) will help you to understand how much money you have available to spend on things like entertainment and clothing… the nice-to-haves.  Just because you have credit available to you doesn’t mean you can afford to spend to that level.  Ultimately you still have to pay off that debt.  So it is important to know if you can actually afford to buy things before pulling out your credit card.

• Don’t just pay the minimum — Credit cards allow you to purchase things and pay for them over time.  If you pay only the minimum balance on your credit cards you pay interest to the bank on the items that you are purchasing.  If you have bad credit, the banks will charge you a higher interest rate than they charge people with better credit.  This means that an item you pay off over time will be even more expensive.

• NEVER skip a payment — Many people feel that their credit card bill is the last bill they should pay.  While it is more important to pay your rent or your mortgage, you should never skip a credit card payment.  If you simply cannot afford to pay your bill, you should contact the credit card company immediately.  They will work with you to come up with a payment schedule.  However, if you skip a payment, you are violating your agreement.  This means that the bank will immediately charge you a penalty fee.  You will very likely be in default on your agreement with the lender which means they have the right to increase your interest rate.  This increase will affect the money you already owe in addition to any purchases going forward.  Your credit rating will also be negatively impacted, making it more difficult to get credit in the future.  The bank can also suspend your account.

Credit cards for people with bad credit generally charge a higher rate of interest than cards offered to people with good credit. This is to protect the bank in the event that you default on your outstanding loans.  If you manage your credit card well, your credit rating will improve over time.  This will make it easier for you to get credit, and get it at a lower rate!  So take care to manage your credit well.