Bad Credit Application Warning Sign – 7 Signs

Seven Warning Signs When Choosing a Credit Card for Bad Credit

When it comes to repairing bad credit, a credit card can be a great tool. However, there are several red flags that come with some bad credit credit cards. You want to avoid these at all costs, as you’ll lose in the long run. Repairing your credit takes time, and you don’t want to be worse off because you chose the wrong credit card. If you’re not sure what bad credit application warning sign to look for, take a look at our comprehensive list.

What is a bad credit application warning sign when applying for bad credit?

First Bad Credit Application Warning Sign: Doesn’t Report to the Credit Bureaus

The entire point of getting a credit card is to help rebuild your bad credit back up. You can only do this through responsible use and regular credit bureau reporting. Some bad credit credit card applications don’t report to the credit bureaus, or they rarely report. So this doesn’t do anything to help you, and you want your card to report monthly.

Second Bad Credit Application Warning Sign: Variable Interest Rates

Several credit card lenders use variable interest rates to lure people in. They’ll advertise a low introductory interest rate as a variable rate. So the catch with this type of interest rate is that increases over time. Sometimes it jumps up to over 29.99% if you miss a payment. You want to get a fixed interest rate credit card. A fixed interest rate will protect you from paying extra money a slowly increasing variable rate.

Third Bad Credit Application Warning Sign: Hidden Fees

You may choose a bad credit credit card because you think you’re getting a great deal. However, the lender may tack on several hidden fees. They usually only mention these fees in the terms and conditions so that you may miss them. It isn’t unusual for a lender to add an application processing fee or a monthly maintenance fee. Shop around and find cards without these hidden fees.

Fourth Bad Credit Application Warning Sign: High APR

You should expect to pay slightly more in APR fees with bad credit. However, you shouldn’t choose a card with an astronomical APR. While it is true the lender charges these fees as protection from the cardholder defaulting, they shouldn’t be extreme.

For example, say your bad credit credit card has an APR of 19.9%, and you currently have a $1,000 balance. If your minimum payment is 4% of your balance, you’ll pay $40 per month. You’ll pay your card off in 73 months, but you’ll pay a total of $1,556. This adds up to $556 in interest charges alone. If your APR is 9.9%, you’ll pay the card off in 58 months and pay $209.11 in interest. A good practice with all credit cards is paying the balance in full every month. This way the interest rate on your credit cards won’t matter.

Fifth Bad Credit Warning Application Sign: High Credit Limits

If you have bad credit, you most likely have had past challenges in managing your debt. You may need to take an honest look to see if you need help with credit cards. A bad credit credit card can help you learn to manage your debt in small steps. Your card shouldn’t offer a high credit limit because this is a way to lose control of your finances. You’ll also typically pay more in fees and interest, so you don’t want to get a huge balance. You should look for a card with under $1,000 credit limit. Ideally, even under $500 would work.

Sixth Bad Credit Application Warning Sign: High Fees Penalty Rates

Credit card lenders make a lot of money from fees and penalty rates. These may be even higher for someone with bad credit. With this in mind, carefully consider all of your fees when you use your card. Things like a cash advance, ATM withdrawals, phone payments, online fees, and more are common. It pays to read the fine print before you settle on a card and try to avoid fees with new credit cards.

Seventh Bad Credit Application Warning Sign: No Room to Improve

You want your card to reward you for using it responsibly. A lot of bad credit secured cards allow their borrowers to advance after a certain time frame. You’ll usually be able to transition to an unsecured card after 12 or 13 months of no late payments. If your card doesn’t offer this, look elsewhere. You don’t want to get stuck with a card that can’t help you improve your credit. Additionally, the card you advance to usually has better rates, and you’ll pay less to use it.

Watch Out for any Bad Credit Application Warning Sign

A bad credit credit card is an excellent tool to help teach debt management. However, these seven red flags are things you have to look for when you’re considering opening a credit card. Credit card lenders shouldn’t punish you for trying to raise your credit score. Do your research and compare various bad credit credit cards. This can help you find the one that suits your needs the best.

Monica Kowollik

Director at CreditFast.com
Monica has covered credit card and personal finance news for over 15 years. From an early age, she developed an interest in financial literacy and saving money. Monica hopes to help others to improve their personal finances one article at a time.