If you have made some financial mistakes, you might have stained your credit score, and now find yourself unable to get a regular credit card, or you find the cards you do qualify for carrying high interest rates and annual fees. Regardless, you will still need a way to receive funds and make payments. Below is a list of alternatives that will allow you to process your financial transactions even if you have bad credit.
What is “Bad Credit?”
Bad credit is an indication that a borrower is a risky investment for lenders and creditors, as shown in their credit history. A low credit score indicates bad credit, while having a high credit score indicates good credit. Credit institutions who lend funds to a person with bad credit usually face a bigger risk of that person not making payments on time.
Credit scores range from 300 to 850. Generally, borrowers who have scores below 579 are considered to have bad credit. According to Experian, one of the major credit bureaus, borrowers with this score range are more likely to get rejected, or become severely irresponsible with loans they avail in the future.
Scores that range between 581 to 669 are regarded as fair scores. Only a few of these borrowers will can become delinquent, which makes them significantly less risky to lend to, compared to borrowers with bad credit scores. But even borrowers within this score range are faced with higher interest rates,or have difficulty in the application process for a loan.
What Are Credit Card Alternatives When You Have Bad Credit?
During the past few years, the ownership of debit cards has more than doubled, while the number of people who owns a credit card declined by 15%. This shows a significant shift in people’s spending behavior. Here are a few advantages of debit cards as compared to using a credit card:
- Debit cards only allow you to spend what you have unless you are granted an overdraft. This helps you handle your finances better, and avoid accumulating debt.
- You are drawing upon a cash savings account, which means it is simpler to view debit transactions, rather than free flowing money you can use for impulse buying.
- Debit cards are better because of the availability of bank accounts. The range of available bank accounts is much better suited for individuals with the poorest credit scores. Debit cards are always available, even to those who have bad credit history.
Prepaid Credit Cards
During the past decade, prepaid credit cards have propagated a lot, and now they are available almost everywhere. Usually, these cards are sponsored by prominent credit card companies like MasterCard, Visa and Discover, and can be used the same as a common credit card. But instead of accumulating balances, you load the cards with your own funds.
The disadvantage of using prepaid credit cards is you have to purchase them, and pay usage fees which can include monthly maintenance expenses, ATM fees and other fees for standard services. You are also not provided with liability protection as you do compared to common credit cards if ever are ever lost or stolen.
PayPal can now provide the same conveniences of a credit card when you make online purchases. They also now have an extra layer of protection from fake goods and possible fraud. This is a huge advantage for PayPal users, because no other online payment providers offer this solution. PayPal accounts can be connected directly to bank accounts, which mean debiting is done instantly.
PayPal also offers a faster “one-click” payment option, making checkout a lot more convenient. Finally, PayPal now offers PayPal debit cards which efficiently functions like a normal debit card to your bank accounts. The PayPal debit card also provides 1% cash back every time you use it.
Subprime Credit Cards
This type of card is offered to individuals who have bad credit scores. If you recently declared bankruptcy, you may have already been made suggested for subprime credit cards. The offers might be a tempting, but you need to be careful before using this option. Usually, subprime cards only come with very low credit limits, but retain high interest rates an high annual fees.
Checking Account Debit Cards
Most banks and credit institutions offer debit cards to their clients through partnerships with Visa, MasterCard, or Discover. This kind of card is easier to use than checks, and are less risky to carry around than cash. One disadvantage of this type of card is having the possibility of your entire savings account drained if your card is lost or stolen. However, there are existing protections to minimize this risk, as long as the card owner is quick to inform their credit company that the card has been lost.
Apply For a Payday Loan
Depending on the reason why you need a credit card, as well as your credit history, you may be qualified to receive a payday loan. While this is different from a credit card, because it gives a lump sum which will be continuously repaid, this kind of loan can be a cheaper alternative for making a large purchase. You will also benefit from having no temptations to pay the remaining balance just to borrow once again.
Set an Overdraft
Having an overdraft can give a more convenient and cost-efficient solution for providing extra funds when it is needed. But overdrafts should only be used as a backup plan. Unfortunately, most people tend to overuse it, and use overdrafts month after month, which leads to a buildup in their interests. Not being able to manage the use of your savings and overdrafts will also result in accumulating excessive bank fees.
Just Use Cash
The most convenient alternative to a credit card is to just use cash. This is the easiest way of keeping record of what you are actually spending in real time, because you physically give the cash in exchange for goods and services. Even with bad credit, you can still pay cash for your bills over the counter. Most banks prefer to accept cash payments even when you do not own an account with them, but expect that you will have to pay for a fee if you choose to do so.