Which Type Of Credit Card Carries The Most Risk?
Credit cards have always been a great asset to enable people to gain financial security. When used correctly and responsibly, credit cards allow their users to increase their credit scores by lending responsibly and making repayments on time.
Credit cards also provide a level of protection and security that debit cards and cash spending does not. However, credit cards are not without risk.
Whilst we are aware that missing credit card repayments and creating bad debt is the most unappealing element of having a credit card, the credit card and supplier themselves can also carry a level of risk.
In this article, we are going to look at the credit cards which carry the most risk and why.
Credit Cards With Upfront Fees
Whilst not all credit cards have an upfront fee from issue, some riskier credit cards carry high upfront fees before you’ve even made an initial purchase! These credit cards tend to offer a reward scheme which will appear as too good to be true.
And for the most part this is exactly the case! Any card that promotes a reward system in return for a high upfront start up fee, should be avoided.
Credit Cards With High APR’S
With so many credit cards on the market, there are plenty of options available to choose a card which doesn’t have a high APR.
The annual percentage rate between most reputable companies will be around the same amount, but riskier credit card providers will often have very high APR rates that simply do not warrant having the card in the first place.
Credit card companies that hold high APR’s will also often not have a fixed term rate, so this APR can change during the course of your credit card term.
This will increase the amount of repayments needed to clear your card and could lead to financial strain and bad credit.
Credit Cards With High Monthly Costs
Whilst an annual fee for a credit card can be expected, it is the credit cards that carry high monthly fees that need to be looked at with a keener eye. These cards promote a monthly
package of perks to their users in return for a monthly fee.
In reality, many users will not use any of these rewards during the term of their credit card and even for those who do, the use will more often than not be less than the monthly fee.
Before signing up for any credit card with a monthly fee, take a few minutes to calculate the overall cost per year for these services, and evaluate if the rewards are worth the cost.
Credit Cards With A Deferred Interest Date
Whilst it will be appealing to take out a credit card with 0% APR, it is worth noting that although these initial purchases will be interest free, the APR will eventually return, often at an extremely high rate.
Often, customers will take advantage of this deferred interest rate to increase their spending habits and buy more than they actually want or need with this ‘free’ money.
They then fall into the trap of owing large amounts of money to their credit card providers with no means of repayment once the promotional term ends.
Credit Cards With No Reporting Policy
One of the main reasons why people take out credit cards in the first place is to build up a credit score for future financial security. Whilst all reputable credit card providers will report credit spending to the necessary financial bureaus, not all do.
As is the case with less trustworthy lenders, these credit cards are not reported to the financial institutions. They are therefore not documenting your spending and repayment history and building towards your credit score.
How Can You Choose A Credit Card That Is Safe?
Compare Credit Cards
The first and easiest way to assess the market and choose a credit card that is right for you, is to undertake a credit card comparison search. This will highlight the most popular and trustworthy credit cards that are available, along with real life customer reviews.
Write down a list of everything you are looking for in a credit card and compile the pros and cons of each one. You can then make an informed decision on the credit card that suits you and your needs best.
Read The Terms And Conditions
Before proceeding with any new credit card, make sure you spend some time reading through the terms and conditions with a fine-tooth comb. Establish what the APR will be for your credit card and confirm that this rate is rigid and cannot be changed during the term of your card.
Also be mindful of the small print in your terms and conditions. Make sure that your credit card limit cannot be automatically increased, that there are no hidden charges, and what the penalties are for missed payments.
Consider If You Will Use Any Benefits
Many people can be lured into obtaining credit cards because of the huge range of benefits supposedly attached to the card. However, it is often the case that the high fees attached to these privileges are rarely warranted.
Before choosing your credit card, make a list of these benefits and indicate if you would use them, the cost if you were to pay for them independently, and if their benefit outweighs their cost.
By spending some time going through your credit card’s benefit scheme prior to signing up, you will ensure that you are not lured in by any false services and rewards.
Whilst having a credit card can be an asset to your financial health, they can also cause devastation if used incorrectly or applied for without due care and attention. There are a huge range of credit cards available and so taking the time to pick the right one for you is imperative.
Before embarking on your credit card journey, make sure to do your homework beforehand. Compare the products available and make a list of their pros and cons.
Read through all terms thoroughly and ensure you can’t be stung further down the line. Be clear on any costs and set a repayment plan to minimize the risk of deferred payments. Use reputable lenders and remember that if something appears to be too good to be true, then it most likely is!