Do You Need a Subprime Credit Card?

If you struggle with bad credit, you may wonder if it’s possible for you to get a credit card. The short answer is yes — subprime credit cards are specifically designed for people with low credit scores. If you’re trying to build or improve your credit, you might be a good candidate for a subprime card.

What is a Subprime Credit Card?

These cards are designed to help people with low or no credit begin improving their credit score. Unlike some higher end credit cards, subprime credit cards are generally more expensive, offsetting the increased risk by charging higher fees and interest rates.

Who Should Get a Subprime Credit Card?

Before you apply for any credit card, it is incredibly important for you to check your credit score. If you haven’t checked your credit report within the past year, you can find it out at Annual Credit Report. You can also use an alternate free credit report checker, such as those offered by Nerd Wallet or Credit Karma. And don’t worry — contrary to popular belief, it does not hurt your credit to check your own score.

A typical credit score breakdown will look like this:

  • 300-650: Poor or no credit
  • 651-700: Fair credit
  • 701-759: Good credit
  • 760 and above: Excellent credit

Where you fall on this list will determine what credit cards you’re eligible for — and if you fall on the lower ends of the spectrum, a subprime credit card may be a great choice for you.

Unsecured Vs. Secured

If you decide to opt for a subprime credit card, there are two main types for you to choose from: secured and unsecured. There are pros and cons to each choice, and which one you go with will depend on a number of factors.

Unsecured

An unsecured credit card is one in which you do not have to put down a security deposit in order to use it. Most high end credit cards are unsecured, and while the unsecured subprime options are fewer, they do exist. Some companies offering unsecured subprime credit cards include:

  • Genesis FS
  • First Premier Bank
  • WebBank
  • Credit One Bank

Note that unsecured subprime credit cards often come with a fee due to the increased risk involved with lending to individuals with a poor credit history.

Secured

Secured credit cards require you to place a security deposit as collateral before you can use the card. While this may seem unappealing, especially if you are on a budget, keep in mind that this deposit is refundable; the fees that come with an unsecured card, however, are not. Some companies offering secured subprime credit cards include:

  • Synovus Bank
  • Green Dot Bank
  • Capital Bank N.A.

Benefits of Subprime Credit Cards

If you have a poor credit score, or you simply have no credit history, a subprime credit card is an excellent way to begin building up your credit. You can do this by making small purchases that you know you can pay off in full every month — for example, consider charging any monthly subscription services to your credit card, and paying them off immediately. By treating your subprime credit card like a debit card, you can avoid being charged interest and late fees, and you can rapidly improve your credit score.

Another benefit of a subprime credit card is that, if you use it wisely, it won’t take long for your credit score to improve enough for you to upgrade to a credit card with more benefits. While there are some short term inconveniences to subprime credit cards, they can be an excellent stepping stone to better things.

Downsides of Subprime Credit Cards

Before signing up for a subprime credit card, it is important to note any potential downsides you might encounter. While these cards offer a good way to build credit, they do also come with very high interest rates and many different fees. When choosing which credit card to get, it is vital to do research into the APR and fees that you might incur, so that you don’t get surprised by hidden costs. If applying for a secured subprime credit card, you’ll also need to have money set aside for your security deposit. Overall, subprime credit cards require quite a bit of budgeting and planning in order to ensure that you are using them wisely and not running into any unexpected fees.

As with any type of credit decision, there are pros and cons to subprime credit cards. If you have higher credit and are eligible for other types of credit cards, a subprime card may not be the right choice for you. If, on the other hand, you are looking to either improve your credit or build up a good credit history, a subprime credit card is a great way to do that. By researching your options, being aware of hidden fees and interest, and staying on top of your monthly payments, you can use a subprime credit card to your financial advantage.

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