Bad Credit Financing

There are various creditors who are willing to extend credit to those individuals with "less than perfect" credit. The most common companies are; Household Bank, Orchard Bank, and Applied Card Bank. These companies target individuals with lower credit scores, presenting an opportunity to build a positive credit history and ultimately capitalize on the sub-prime market. With "second-chance" financing becoming increasingly popular; more credit companies will begin to evaluate the effectiveness of extending these types of offers. What to expect from creditors that offer second-chance financing:

Higher Interest Rates - based on the fact the creditor will assume an increased risk by offering second chance financing; interest rates range from 15.9% as high as 24% based on your credit score.

Introductory APRs - the introductory APR is referred to as a "teaser" rate and will be significantly lower for the first 6-12 months depending on your score and the lender. Teaser rates can be as low as 3.9% and as high as 12% again depending on the individual’s credit score.

Annual Membership Fees - you can expect to pay an annual membership fee if you are a participant in a second chance lending program. Annual Membership fees range from $29 to as high as $99 annually. Some creditors will also apply monthly membership fees which allocate a specific amount over a 12 month period.

Initiation Fees - in some instances you can expect to pay an application fee upon approval. These application fees range from $39 and can reach as much as $199.

Activation/Processing Fees- in some instances you can expect to pay an activation fee which is applied to your first monthly credit card statement. This fee ranges from $39 and can reach as much as $199.

Increased Minimum Payments - for a "prime" consumer a typical monthly payment is 5% of the credit card balance or $10 whichever is greater of the two. With second chance financing minimum payments can reach 10% of the balance; and in some instances, creditors will require the balance be paid in full monthly.

Lower Credit Limits - whenever an offer is extended for second chance financing the credit limits; on average, is approximately $300. The credit limits are substantially less based on the risk posed by a sub-prime consumer.

Repricing - the word repricing means what the word entails; repricing the account (APR). Once a credit offer is extended the creditor provides credit disclosures. These disclosures are essentially, the terms of the credit card. It includes the Annual Percentage Rate (APR), minimum payment requirements, fees imposed for late payments, fees for going over the assigned credit line, and additional fees associated with the card. It includes laws segmented by state and any other applicable terms or fees associated with the card. If any of the parameters are deviated from; the creditor can reprice the account. This can affect fees imposed and the overall APR. It can also increase the minimum payment requirement. Creditors have "triggers"; if a payment is late, the account goes over the limit or they pull the credit bureau report and you meet certain criterion you are at risk for being repriced.

Miscellaneous Fees - creditors who offer second chance financing are more likely to charge miscellaneous fees for various services. Those services include; but are not limited to, statement fees, fees for calling customer service, card issuing fees, and maintenance fees. This is specific to each creditor and the fees are minimal. Typically, you will pay an additional $2.00 per month for a paper statement, a $5-$10 fee for requesting an additional card or replacement of a stolen card, and a $.50-$2.00 charge for calling customer service. In most cases, these miscellaneous fees are not charged, it is important to review the credit disclosures to determine if this is a condition of the contract.

Let us pose yet another lucrative option for those who have "less than perfect" credit. Some credit companies offer secured lines of credit. A secured credit card is one that requests an initial deposit from the consumer as a "good faith" deposit which serves as collateral if the credit card falls delinquent. The initial deposit varies by creditor and many creditors offer different ratios. For example; you may have one creditor who offers a $500 credit line for an initial deposit of $99, this ratio would be 5 to 1. Another creditor may offer a credit line that matches the deposit. This ultimately means if the consumer deposits $200 the credit line would equal $200. The advantage to you as the consumer; the initial deposit accumulates interest and helps establish credit. A secured credit card will report to the credit bureau exactly as an unsecured credit card. There is no distinction; therefore, it is establishes credit the same way. In addition; you are able to increase your credit line by depositing additional funds into your secured account. In most cases, once you have established a positive pay history with the creditor, they will reimburse your deposit with the interest that was accumulated. The credit card then becomes unsecured and is eligible for credit line increases with no deposit requirements.

As a consumer this provides a gateway to reestablish credit and begin to rebuild your future. Remember to always read the fine print and review all material for hidden fees which can be a surprise to consumers who did not read the disclosures thoroughly. Staying informed is the key to reestablishing credit with a second chance lender. You definitely can expect to pay more than a prime consumer; however, the long-term benefits are endless.