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Are Sub-prime Credit Cards Worth It?
There are many critics that argue against the value of sub-prime credit cards. These criticisms come down to the same thing, that traditional prime credit cards are simply better than sub-prime credit cards.
Differences between Prime and Sub-prime Credit Cards
There are a lot of differences between prime and sub-prime credit cards. In almost every instance, a prime credit card appears superior to a sub-prime credit card. Prime credit cards offer much more money, and in comparison to sub-prime credit cards, they have much more generous payment times. They don’t have as bad of late fees or other punishments as sub-prime credit cards. Many credit cards offer reward plans, while sub-prime credit cards lack those options.
The Major Difference
In terms of value, prime credit cards are always going to come out on top. There is one major difference between traditional prime credit cards and sub-prime credit cards, and that’s the requirements. With traditional credit cards, it can be very challenging to get approved if you don’t already have an existing credit score. Of course, to have a credit score, you need to have a credit card in the first place. Not only that, but if you have negative credit it becomes even harder to get approved for a credit card, which in turn makes it that much harder to increase your credit score.
Building up Credit
Sub-prime credit cards essentially exist for people that are trying to improve their credit score. Without the use of sub-prime credit cards, it can be a very daunting task to actually get positive credit, and some people simply don’t have the time for that. Sub-prime credit cards might not have the same benefits as prime credit cards, but that’s intentional. Sub-prime credit cards exist to rebuild credit. Typically, within a year or two most sub-prime credit card holders will have improved their score enough to transition into a normal credit card thanks to their improved score.
Is it fair?
Sub-prime credit cards are arguably very fair because it gives applicants a chance to improve their credit score and become eligible for prime credit cards, something that would normally be much more difficult without the help of sub-prime credit cards. Sub-prime credit cards do have stricter payment plans, but that’s a necessity for companies that offer these credit cards. Because of their credit scores, applicants don’t have a way of showing they are reliable and good for payments. Companies don’t want to lose money, so they limit how much they offer applicants. They aren’t trying to take advantage of their applicants; they’re simply setting it up so they don’t lose their money. After all, if that happens they wouldn’t be able to help anyone.
Reading the Fine Print
Just like with prime credit cards, some companies will be more appealing than others. There are some sub-prime credit card companies that do have even stricter rates. These companies have incredibly high interest rates and just like to pile on late fees. Another warning sign is when a company requires you to stay on their credit card plan for a set amount of time. Again, sub-prime credit cards are meant to be temporary, so long term plans should be avoided.
Even if the majority of sub-prime credit card companies are safe, many applicants are still nervous about encountering some of the shadier ones. A simple way to avoid all of this trouble is by going through a company that offers prime credit cards as well as sub-prime. This also makes it much easier to transition back into using prime credit cards, since you have a history with that company and they know you can be trusted. It might even make it possible to get a prime credit card before your credit is completely out of the red.