Learning More About Credit Builder Credit Cards26th February 2012
Due to various reasons there are many people who have a poor credit score. A poor credit score is a great disadvantage when it comes to obtaining finance. They must, therefore, work on repairing their credit score. On the other hand, there are also individuals who have not yet owned any credit cards or may not have established their credit history yet. They too must start working on their credit history. A credit score is an essential part of life for individuals in the UK. It affects almost every activity and aspect of their lives. For both these type of individuals, applying for a credit builder credit cards is a good start.
Understanding Credit Builder Credit Cards
Credit builder credit cards are exactly what they are. They are designed for individuals who suffered a bad credit score, which they want to repair. They are also suitable for individuals such as young professionals who have yet to establish their credit reputation. Applying for a regular consumer credit card with better features is not easy because it requires good credit score. Credit builder credit cards are their best option. Banks or financial institutions that issue this type of card are not very concerned about the credit history of consumers. There are three types of credit builder credit cards available today in the market.
- Bad credit credit cards. This card is truly meant for consumers with bad or poor credit history. Bad credit cards are like the regular consumer credit cards, but with higher interest rates. This is because the cardholder poses higher risks to the issuing bank as far as making regular payments is concerned. Of course, because the interest rates are remarkably higher, cardholders of this type must use the card wisely and strategically to continue with their credit history; however this time, the score becomes better than before.
- Student credit cards. Although by nature, student credit cards are a specialty cards because they address a certain group with unique needs, they are also considered a credit builder card because students, by using such cards, are able to establish their credit reputation and record it on their credit history. One of the significant requirements for student credit cards is to be currently enrolled in a university or college. Like all other types of credit builder credit cards, the student credit cards have limited credit limit.
- Secured credit cards. This type of credit card requires the cardholders to make a deposit payment before it is issued and activated. The idea is to protect the card issuer in case the cardholders turn delinquent in making payments. Of course, the deposit made is only collateral. It still requires the cardholder to make the necessary payments of monthly dues. People who have yet to build their credit history or improve credit history may find this method to be particularly helpful in their endeavor.
What Are The Advantages Of Credit Builder Credit Cards?
For one thing, if people prefer to use secured credit cards and manage them well, they may find that they are practical to use because they will only spend what they are able to spare or allow from their financial resources. Of course, since there is a security deposit, the cardholder will make it certain not to lose such valuable collateral which ranges from stocks to jewelry to cars.
Meanwhile, bad credit cards have higher interest rates, which will compel cardholders to make second thoughts on using such cards extravagantly. Hence, they will use breaks in shopping. They will also cultivate sense of responsibility. Moreover, this type of credit cards is unsecured. This means that no collateral is required in applying for such card. Most cardholders use this type of card to slowly repair their bad credit and to only for important purchases they can't afford immediately.
What Are The Disadvantages of Credit Builder Credit Cards?
Despite the security deposit, there are still individuals who might fail to make regular payments because there are no fail-proof credit cards. This can spell the risks of losing the collateral. Sometimes, the value of the collateral is higher than the outstanding balance. To outdo this drawback, the cardholder should exercise care in spending.
Bad credit cards, on the other hand, really have higher interest rates, which are the main negative thing about the cards.