All About Sub-Prime Credit Cards
If you have recently applied for a mortgage, you probably heard the term “Sub-Prime Lender” said once or twice. Most people aren’t familiar with this particular financial jargon, and even fewer people realize that “sub-prime” actually applies to credit cards, too!
A sub-prime credit card is simply a card that is tailored to people with less than ideal credit. It is the same essential thing as a sub-prime mortgage lender. They also deal with borrowers who may have trouble borrowing from a traditional lender due to credit-related problems. Dealing with sub-prime credit cards can be a great way to rebuild your credit and eventually move on to prime credit cards. There are, however, a series of catches that the sub prime credit card lender inserts into their credit card agreements to protect themselves in case you default on your account. If you are considering signing up for a sub-prime card, make sure you read the fine print and completely understand what you are signing up for before you do it. Let’s take a closer look at the main differences between a sub-prime card and a prime, or regular, credit card.
The single biggest distinction between sub prime and prime credit cards is that sub prime cards accept more people with bad credit. In most cases, if you have suffered a major blow to your credit like a bankruptcy or a major default of some kind, sub prime lenders will offer you a card as a way to rebuild your credit to normal levels. Once you have done this, many sub prime lenders have other prime credit cards which they may offer to switch you to. Providian is a great example of this. They started almost exclusively as a sub prime lender, but they also now offer a host of prime cards for those that have recovered their credit to a high level.
Sub prime cards do have a series of catches, though. They almost always have a higher interest rate than prime cards. Sometimes, they can even find their way around laws and offer rates above the maximum. If you are thinking of accepting a sub prime card, check the interest rate and make sure it is something you can afford. Rates often start at or above 20%.
Sub prime cards also tend to have a lower credit limit to start with than most prime cards. This is to protect the lender so a new card holder doesn’t run up a huge balance and then default. As a general rule, most sub prime cards start with a balance of $1,000 or less.
Sub prime cards also come with a host of fees, including an annual fee. Annual fees aren’t that uncommon, even in prime cards. Some very high end prime cards like gold cards often come with an annual rate because they offer so many extra services. While it isn’t universal, most sub prime cards do have an annual fee that is usually between $50-$75 dollars.
Sub prime cards can also come loaded with other monthly fees other than an annual fee. Credit card applications are required by law to list EVERY fee they charge on the back of their application. It is very, very important to read the application and the charge break down on the back completely before you sign up.
Sub Prime cards usually are not affiliated with an awards program, either, like air miles or something similar. Once you rebuild your credit, however, you can switch off from the sub prime card to a prime card that does offer rewards.
Sub prime credit cards can be a godsend and a curse. The fees and high interest rates can make having them seem like more trouble then they are worth, but they are a fantastic way to rebuild your injured credit situation. The most important tip is to read your application first before you sign on the dotted line.