Unsecured Credit Cards Compared To Bad Credit Cards

Are you wondering why lending companies and utility providers are less willing to approve your credit application?

Here is an insight.

When it comes to taking out a loan, mortgages, insurance, and utilities, the providers do look at the credibility of the customer. The credibility tells how regularly you have been repaying your loans, or paying bills on time without any default.

Good payment history can guarantee an easy approval. Your good credit score plays a role in this approval.

FICO has formulated a credit score scheme which ranges from 300 to 800. A good score is 700 while fairly good 600. If your credit falls below 600 credit then this is a bad credit from the rating agencies. The alternative to bad credit cards are unsecured credit cards.

The unsecured credit card is a scenario where you get credit when you don’t have any money deposit in an account to cover your credit limit. Actually, life is easier with the unsecured credit card since you can enjoy the services and pay for them later.

Since there is risk involved with the unsecured cards, as an alternative for bad credit cards, if it is approved then the issuers has to share the risk as well. The consequence can be a high interest rate charged to the cardholder.

Usually, a credit card company charges approximately 13% to around 19% for bad credit borrowers and relatively cheaper rates of about 8.5% to 11.5% for good credit score borrowers. Clearly the bad credit borrower will pay more interest if they do not pay off their balance every month. Unsecured card holders enjoy less interest accruing on a comparable balance.

In summary: An unsecured credit card is the alternative to a bad credit card although it compromises on high interest rates which is avoidable by creating a good credit card score.