Bad credit affects everyone at one stage or another. It’s so common, that’s why those “Bad credit? No Credit? No problem!” signs are everywhere. The Internet, print ads and television touts them nightly. What those bad credit commercials don’t tell you is that a bad credit loan can end up costing you thousands of dollars. The good news is that, in some cases, bad credit cards can be a positive thing. Credit cards for people with bad credit can actually help them build their credit and save thousands of dollars.

When talking about credit cards for bad credit borrowers, the cards which help are the secured credit cards. Secured credit cards are backed by a deposit of money equal to or a percentage the total. In other words, the consumer (borrower) sends a lender a sum of money, usually around $200-$500. The lender holds that money and issues a credit card to the borrower. The borrower can then use the credit card up to the limit of the card (the amount of the deposit).

By making a series of on time payments for a period of time, usually 12 months, a person’s credit score can be increased. The payments show other lenders that you’re a safe borrower again. Having a credit card is convenient, but usually credit cards with bad credit are bad news. They have high interest rates make them a very bad investment for long term use. They’re a great investment for short term rebuilding of credit.
After making approximately 12 months of good payments on the card, check your credit score. If your score has risen, you can then close the secured card and apply for a more reasonable interest rate. The lower interest rate credit card isn’t the only way money will be saved. When you’ve repaired your credit enough you can refinance your house, car, saving thousands of dollars.

The average bad credit loan has an interest rate of nearly triple that of a good credit loan. What that means for the consumer is paying triple the amount of interest. For example, if you have bad credit and have a $500 credit card, you will pay (at 24% interest) a total of $67 in interest. Now that doesn’t sound like much, and it’s perfect for rebuilding your credit. But what should interest you is that if you rebuild your credit and refinance your home loan or car loan it’s a whole different story.

A bad credit home loan at just 12% interest and $150,000 will pay nearly $10,000 in interest. If you improve your credit by just 50 points you can drop the interest rate to 9% at which the total interest is about $7,500. By waiting and rebuilding your credit you can save nearly $3500. The better you improve your credit, the more money you can save. Imagine all the money you’d save by waiting until your credit score is at 650.

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