Credit Cards: What Are ‘Adverse Credit Cards’? By David P Walker At Isnare.com Ezine Articles

Adverse credit cards are available for people who may not have access to the most competitive credit cards. This is usually because they have a bad credit rating, and are therefore considered by lenders to be in the ‘high risk’ category of borrowers.

Adverse credit cards usually have higher interest rates and less features than other credit cards, making them an unattractive option for those who can take out other types of credit card. However, they can help to rebuild a good credit rating, if used sensibly.

What is a ‘credit rating’?

A person’s credit rating is calculated by a credit reference agency – a commercial company which compiles information about people from many sources including financial institutions, the electoral role and county court judgements. The agency sells the information to lenders so they can decide whether to grant people applications for financial products.
Why does a bad credit rating make a person ‘high risk’?

A person can be given a bad credit rating for all sorts of reasons. Some of the most common are if they have had no credit so cannot prove they are reliable, or if they have defaulted on previous credit cards or other types of repayments in the past. They are considered high risk because the lender cannot be confident that they will get their money back.

Should you get an adverse credit card?

If you do have a bad credit rating then an adverse credit card can be a sensible way to rebuild a good credit history, as long as you are meticulous about paying off the monthly payments. If you pay these in time, you will be proving that you are a reliable borrower and this should have a positive impact on your credit rating. This will give you certain credit-related advantages in the future such as using interest free on purchases offers, as well as cashback and airmiles offers.

Remember to clear you debt every month

Even if you pay the required monthly payments, you could still be incurring huge interest on your debt if you do not completely clear your adverse credit card every month, so you must be careful to pay off the balance in full. This is the only sensible way to use an adverse credit card. Otherwise, you could find your debt has spiraled by the end of the year because of the extremely high APR.

Interest on adverse credit cards

Interest rates on adverse credit cards tend to be a lot higher than that of more competitive cards – they are usually around 30 per cent while other credit cards will tend to be closer to 20 per cent. They also have less features and lower credit limits than other credit cards.

Be careful...

You need to watch out for some tricky areas when it comes to using an adverse credit card. Withdrawing money from a cash point, gambling or buying gift vouchers, for example, might leave you with unexpected charges if you haven’t read your card’s terms and conditions.

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