Unsecured Credit Cards

However, for you an unsecured card could be risky business.  The interest rates on unsecured credit cards vary depending on how likely it is the bank thinks the cardholder will default. The less risk you are to the bank, the lower the credit card interest rate or APR you'll receive.

Unsecured Credit Cards can be a Fee fiesta

Unsecured credit cards for consumers who are considered high risk--those who have bad or limited credit, or have previously filed for bankruptcy, for example--usually carry a high APR, sometimes approaching 60 percent. And there are many fees for using the card. Here are some of the fees you can expect to pay for an unsecured credit card:

• Annual fee up to $59
• Account processing fee (to open the account) up to $39
• Monthly servicing fee that can amount to $75 a year
• Additional card fee up to $29
• Credit limit increase fee up to 25 percent of the amount of the increase (e.g., a $100 increase would incur a $25 fee)

Most of the unsecured credit cards for poor credit cardholders also have low credit limits to start with, usually $300. Adding up the initial fees, a new cardholder could find that they begin with a balance of $105, and the interest rate they'll be charged on that balance could be nearly 60 percent. Because most of these cards have no grace period, it means you will be paying interest on the balance from the moment the charges are made.

What's the upside of an unsecured credit card?

The only upside to these unsecured cards for high-risk consumers is that the credit card use is reported to the credit reporting bureaus--Equifax, Experian and TransUnion--and will help you build a credit history if you are willing to be vigilant about paying the balance on time and in full every month.

A secured card can be a better choice

The more cost-effective way to build a credit history is with a secured credit card. Yes, you will need to have at least $300 to deposit with a bank to secure the card. But the fees are not nearly so onerous and the APR won't be either. The added advantage is that if you pay your credit card bill on time every month and don't max out your credit limit--in other words, use the card responsibly--the credit card issuer may raise your credit limit without charging you a fee.

After a year of responsible use, the issuer may convert your secured card to an unsecured card that doesn't carry all of the fees and high APR. Before you apply for a secured card, however, be sure the issuer reports it to at least one of the credit bureaus or your goal of establishing a credit history will not be achieved.

Read the fine print on unsecured credit cards

Regardless of which type of credit card for bad credit customers you choose, be sure to read the fine print in the Terms and Conditions section of the credit card application before you apply for that credit card offer. You need to understand what actions on your part--making a late payment, exceeding your credit limit--will trigger additional fees or, worse, an increase in the APR.

Learn about secured credit cards.