Credit card ads make it seem like companies are willing to approve anyone with any credit. Some companies even send out “pre-approved” offers, but as soon as you try to claim the offer with bad credit, the credit card company rejects your application. Finding the right credit cards for 500 credit score can be a bit of a challenge, but it is worth it to be able to start rebuilding your credit. These cards are designed for precisely that, so you can expect fewer frills than better credit cards.
Secured Vs. Unsecured
Most credit cards that you see advertised are unsecured cards. This means that the bank is relying on your credit alone to make sure they get repaid. So, if you default on an unsecured card, then the balance remains unpaid and it reflects on your credit report.
Secured cards are usually only used for credit building. These cards require that you pay a deposit upfront, then borrow against that. You are still expected to make a monthly payment and pay interest, so it is not the same as a debit card. The deposit is usually between $100 and $300 and cannot be used to pay your bill. When you close the card, you receive your deposit back.
If you default on a secured card, then the lender can report you to the credit bureaus, and it can damage your credit, just like an unsecured card. You can also expect to pay late fees and possibly higher interest. Just because the card is secured, doesn’t mean that it can’t hurt you.
Fewer, If Any, Reward Perks
Secured cards are meant to serve one purpose: help people with poor credit rebuild their credit. As such, secured credit cards generally lack most, if not all, of the usual reward perks that you expect from a credit card company.
Unsecured credit building cards are the same as secured cards when it comes to rewards. You might find the occasional offer for a credit builder with rewards, but these are the exception and not the rule.
Beware The Interest of Credit Cards for 500 Credit Score
Credit cards for 500 credit score are notorious for charging exorbitant interest rates, so it should not come as a surprise that credit builder cards have even higher interest rates. The critical thing to remember is that you can pay off the balance before the company charges you interest and it can still reflect on your credit report. The exact date depends on your contract, so be sure to read the fine print.
Be Sure Your income Is Accurate
It is all too easy to round down your salary or forget about your side business when you are asked your income on a credit card application. This can be a huge mistake; however, as a significant factor in the decision of whether or not to approve your application is based on your monthly income
While an extra $100 per month may not seem like much, it might be just what you need to get approved. Even a small amount can change your income to debt ratio and improve your odds.
Most credit card companies are reluctant to issue credit cards for 500 credit score, but if you keep searching to find the offer for you. Do not be put off by higher than average interest rates, instead make it a point to pay off your card before the company charges you interest. This method saves you money and reduces your debt to income ratio. Reducing the debt to income ration can have enormous impacts on your credit score as it is 30% determined by this simple ratio.