What is Unsecured Credit Card For Bad Credit?

A credit score represents the creditworthiness of an individual. It decides whether the individual deserves a particular type of credit card or not. On a scale of credit score, the individual can either be on a bad, good or excellent side. Accordingly, he can get benefits while availing loans. This credit score is generated by combining a lot of factors about the user such as payment history, total debt etc. In the next section let us discuss this in detail but first let us know discuss more about credit score. 

The credit score is specially designed for the lenders so that they can make a faster decision on whether to approve the loan or not. The credit offered in case of credit card is another type of loan which can be used again and again. With the help of credit score, banks in Mesa Arizona and Companies can calculate the level of risk in issuing the card. For example, if a person has a bad credit score then there is high risk in issuing the money. 

When an individual gets a loan, lenders report the activity to the credit bureaus. After this, the information is compiled into a credit report. Since reading from these reports can be very time consuming, most of the lenders like to talk in terms of credit score only. Let us check different types of credit score available: 

An individual can have multiple credit scores (types) but most of the lenders use FICO score. Even if any lender considers a different type of credit score, the base of calculation is always the payment history. The range of FICO score is from 300-850.

How a credit score is calculated?

The credit score is made up of five main components called as payment history, total debt, and length of credit, new credit and credit mix. In this calculation, payment history (contributes 35%) is the most dominant factor as lenders want to know about the previous payments of the applicant. 

Total debt keeps 30% of the total weightage in the formation of credit score whereas the length of credit keeps 15% of the weightage. New credit plays an important role as it is advised that any applicant should not use more than 30% of the available credit. Using more than 30% can make him fall under the high-risk category. It has 10% weightage in the calculation of credit score. The last factor which contributes to the credit score is the credit mix (other different types of credit). 

Here one thing must be noted that in case the individual is young and has no credit history then instead of going for the credit score lenders are going to check other factors like electricity bills etc. Now let’s see some types of credit cards ruling the market: 

Well, there are multiple credit cards for low credit in the market. For example, student credit card, travel credit card, business credit card, personal credit card etc. To make the data easy for the users, here top credit cards for bad credit are divided into two categories based on their security levels. These are secured (low credit score credit cards) and unsecured credit cards. Let us check them out: 

Secured credit cards: These cards are generally preferred by the individuals who have no credit history or they want to restore their credit history. As the name suggests, these credit cards have a security feature so that customers can avoid late payments. In case of working these cards are totally similar to the unsecured credit cards except the deposit or collateral feature. These cards are also called as secured cards for bad credit.

Before availing the card, an individual has to deposit some amount initially. As he is not having any credit history, it is difficult for the bank to trust him and lend him any money. This deposit is 100% refundable until the applicant does not default the money. In most of the cases, the collateral amount is equal to the credit limit. For example, if any person is having a credit limit of $5000 then he needs to pay $5000 as an initial deposit. 

Unsecured credit card: As the name suggests an unsecured credit card does not have the security option. In the market, most of the credit cards are unsecured credit cards. As these cards have high credit limits and some special benefits the credit score needed is high. People prefer unsecured credit card more as there is no need for paying an initial deposit. To manage the finances, individuals need higher credit limits and in the case of secured credit card, paying an initial deposit can be difficult. Thus with the increasing demand of Unsecured credit cards, companies started issuing them to the individuals with a low credit score. The consequences of the guaranteed approval Unsecured credit cards for bad credit vary from individual to individual. As there is no initial deposit, no one can predict how long he’ll be able to manage his repayments. That is why unsecured credit cards for bad credits should be handled with care.