What Makes a Bad Credit Card Terrible?

Every credit card is a product that’s designed to make money. Some cards are created to get more money from people who are deprived of credit and can’t get approved for better cards. Check out these features that make a bad credit card even worse.

High annual fees without comparable benefits

Some of the most prestigious cards have higher than average annual fees. So having a card with a $300 or $400 annual fee isn’t necessarily a bad thing. But, having plastic with a high annual fee and no benefit is. If your card charges you an annual fee, it should have comparable benefits, perks, and the opportunity to earn rewards that make up for the annual fee. Examples of benefits include concierge service, annual companion air tickets, and excellent rewards programs. Without such perks, a high annual fee is not worth it.

Higher than average interest rate

Credit cards aimed at people with bad credit are known for having high interest rates. But, even those interest rates are in the high 20% and low 30%. The average APR on a bad credit card is currently about 25%. Any card that has an interest rate significantly higher than that is predatory and should be avoided. Unfortunately, there’s no Federal law that dictates how high rates can be, so banks can set their interest rate as high as the market can tolerate. If no one signs up for those cards with high interest rates, the issuer will eventually bring down the rate to get customers to sign up for the card.

Credit cards with lots of fees

Whenever a credit card has a low-interest rate but it geared toward people with bad credit, you should probably keep reading the fine print. It’s almost guaranteed that credit card will have a ton of fees that are automatically charged. For example, you can expect to have an annual fee, monthly fee, or some type of account maintenance fee that’s charged every month. By law, these fees are capped at 25% of the credit limit, but that’s still a lot of money to pay ($25 per $100 of credit limit) just for the privilege of having a credit card. If the credit card has a lot of fees and a high interest rate, it’s just a bad deal.

No grace period

The grace period on a credit card is the amount of time you have to pay your balance in full and avoid interest charges. Credit cards aren’t required to give you a grace period and there are a few of them that don’t – most of them cater to people with bad credit. No grace period means you’ll always pay interest on your balance regardless of whether you pay it in full or not. You’ll never get the chance to avoid paying interest. If the credit card has a high interest rate and no grace period, that’s even worse because you’re getting charged a high finance charge from the beginning.