Sub-Prime Credit Cards

Sub-prime credit cards can offer consumers with a poor credit history a fresh start - a chance to improve their credit score while enjoying the advantages of using a credit card.

Sub-prime cards work the same way as a regular credit card. The cardholder will get be able to make airline and hotel reservations online or over the phone, pay-at-the-pump at gas stations, and get “swipe, sign, and go” convenience anywhere credit cards are accepted.

But as anyone with poor credit knows, there is a higher cost in getting credit, and this includes sub-prime credit cards.
Card issuers who specialize in sub-prime cards charge more in fees and higher interest rates because they are extending credit to high-risk consumers - it’s simply business.

An annual fee, a one-time processing fee, and possibly a monthly service fee may all be part of applying for and using a sub-prime credit card. By contrast, prime credit cards may come with an annual fee, but not monthly service fees or processing fees.

Sub-prime credit cards also come with an annual percentage rate (APR) that is higher than a regular credit card. While rebuilding your credit, the last thing you need is to be buried in debt due to a punishingly high APR.

To side-step this and save yourself from being charged interest charges, pay your entire balance every month by the end of the grace period. This is good practice for any credit card balance, sub-prime or not.

Penalty fee are assessed for late payments, payments made with insufficient funds, or spending over the credit limit, just like with any credit card. Manage your finances responsibly and you can avoid paying penalty fees.

Use your sub-prime card wisely by keeping your credit utilization low - use a small percentage of your credit limit. A balance that is under 30% of your credit limit is best, and maxing out your card is worst. Actually, going over your limit is worst, but you get the idea.

Pay at least the minimum payment on time every month. But as mentioned above, it’s best to pay the entire balance in full every month to save you from interest charges and help you develop smart credit habits.

While a sub-prime credit card may not be the ideal credit card, it’s probably much better than not having a credit card at all. The aim in using a sub-prime card is to get the benefits - the convenience and safety - of using plastic while rebuilding your credit history.

After a year or two of using your sub-prime credit card responsibly, you may graduate to a standard card with lower fees, a lower APR, and possibly even rewards.