Bankruptcy has a significant effect on one’s credit score, as well as their ability to apply for credit cards, home loans and other important financial support. Once a creditor spots a bankruptcy on an applicant’s record, they may be alerted to the fact that he or she has trouble meeting their financial obligations. There are ways that debtors can rebuild their credit following a bankruptcy, including applying for subprime credit cards. These types of credit cards are designed for people who struggle with bankruptcy, as they will approve those who have a bankruptcy on their record. Experts warn people who apply for these credit cards that high interest rates and fees could lead to more financial trouble.
Subprime credit card lenders approve people with poor credit, below 600, and attempt to help them rebuild their credit score by giving them a chance to charge and repay their balance. As a way to minimize their risk, however, subprime specialist issuers must charge high interest rates, processing fees, annual fees, maintenance fees and authorized user fees. This can put the applicant in danger of becoming indebted once again. CBS News reported that paying off a subprime credit card takes on average, 70 percent longer than paying off a traditional credit card because of all of these added fees and charges. In addition, the agreements can be difficult to read and understand.
A good alternative to subprime cards may be those that require people to prepay on the card with their own funds. These cards involve minimal or no processing fees and eliminate the risk of people falling back into debt.