Which type of credit card carries the most risk and why is the subject of this post. And while it may seem obvious to some, for most people, figuring out which credit card is the least risky, is a hassle.
When taking on any type of credit card, it’s advisable to perform a risk assessment beforehand.
The best credit cards will be those that work to your individual circumstances. This means they give you clear access to credit that you can then use how you prefer.
Those good credit cards should also offer the best rates, terms, and conditions. Above all, these terms and conditions should be clear cut.
Unfortunately, there are certain types of credit cards deemed as riskier than others in the financial industry. If you are going to opt for these specific card types, it pays to be more financially savvy.
Here we look at the types of credit cards that carry the most risk. We then consider why these card types attract so much trouble and what you can do to work against that.
Which Type of Credit Card Carries the Most Risk and Why?
What We Mean When We Talk About Risk with Credit Cards
All credit cards carry some form of risk with them. How you manage against that risk is the deciding factor on how your financial future will play out.
Yet, there are those credit cards deemed to be risky financial propositions from the very start. This means the warnings are there for all to see before committing to such cards.
If you aren’t quite credit card knowledgeable, such warnings will often go unheeded.
All credit card providers have an obligation to highlight their interest rates, terms, and conditions. Yet not all are so forthcoming with such information.
So, those credit card providers who are the risker choices can often mask the important stuff.
This includes their extortionate APR rates, fees, useless rewards, and deferred interest propositions.
Some may only find this information out once they’re in a situation whereby they can’t get out of the contract.
These are the credit cards that the experts suggest are high-risk choices. And it is these that you should make yourself aware of before making your application.
What Makes a Credit Card Risky?
All credit cards can pose risks. This is because they can land you in a significant amount of debt if you fail to keep up with your payments.
But, this is usually a case of human error. Usually, most people have no problem keeping up with their monthly costs.
Yet, there are also those credit cards that are way riskier. These are the cards that people are likely to become entrapped by.
Worse still, these credit cards throw up suspicious issues once a customer has signed on that dotted line.
Eventually, risky credit cards are more likely to get you into debt, despite paying your bill regularly.
In short, these credit cards are designed to push your credit rating and, indeed, your patience to the very limit when it comes to personal finances. So, they are the ones that should be avoided as much as possible.
The Types of Credit Cards You Should Be More Cautious Using
When narrowing down those more risker of credit cards, there are a few that stick out! This makes it easier to separate the lousy from the good.
Here are several of the more risker credit card types that you may want to approach with more caution and care.
Credit cards with extremely high APRs attached
The annual percentage rate, that of interest on your credit card, is a fact of life when it comes to owning these cards.
A natural cost added to your borrowing amount, this will be displayed before you sign for it on a credit agreement.
But whereas there is an average APR between most reputable credit cards, some providers like to assert their own.
In many cases, this runs into astronomical and almost comical figures. It’s like some of the risker credit card providers pull a random APR figure and run with it!
Credit cards with high fees upfront
Though there aren’t many, those risker credit cards usually tend to pose an initial fee upfront. This is before you’ve even had a chance to make your first purchase.
What’s more, most of these fees are considerably high compared to those standard, reputable credit cards.
So, those that usually boast of too good to be true sign up bonuses and upfront fees are generally red flags.
These are often disguised in the terms and conditions. They use descriptions such as participant fees, program fees, account setup fees, credit limit increase fees, and additional cardholder fees.
Credit cards with high fees ongoing
Another way those risker credit card providers get more from you is by ongoing fees. Several reputable card providers may also charge for additional items.
Yet, it’s the high rates of these particular fees that can be eye-watering with riskier cards
For example, though annual fees may be standard with many credit cards, the cost should be weighed up with the gains beforehand.
Sometimes that high annual fee isn’t worth anything at all if it outnumbers everything you receive in perks from your credit card.
Credit cards that promote deferred interest
Deferred interest credit cards can also be the riskier choice. Though they can sound great at the very beginning, they will, at some point, need paying back for their initial offer.
Yet, it’s usually more than likely this figure will have increased immensely by then.
These are the cards that claim to offer no interest until a later date or buy now pay later.
While they sound ideal at the time, especially if you’re strapped for cash, they always need repaying.
Often, people find that by the time the promotional date ends, and the entire cost is due, they’re not in a sound financial position to pay this back.
At this point, interest will be lumped onto that initial cost, and the rest will begin mounting swiftly.
Credit cards that have a restricted low credit limit
Unfortunately, several credit cards pose a risk to your credit rating. These are known in the industry as low limit credit cards.
Though they don’t sound so bad, by using such card types, you have to work harder to get those better terms. More than likely, these won’t be possible to change afterward.
Future wise, this can impact on both your credit history and income. It will also mean you struggle when it comes to keeping your credit utilization ratio down.
Credit cards that have a no credit reporting policy
With those risky credit card providers that do not report to the major credit bureaus, you won’t be building up your credit score.
Though not risky as such, they are indeed problematic because they won’t be doing you any good.
Whereas, if you had taken on a reputable credit card, you would have all your suitable activities and scores noted for a future credit reference.
Credit cards that boast of rewards programs that are complicated and confusing
Credit cards with rewards and offers may draw many people in. But, with those risky credit cards, such rewards programs aren’t always what they first seem.
Usually, these types of credit card reward programs are highly confusing and so complicated to master.
This is all due to creative marketing on behalf of these risky credit card providers.
The idea here is to confuse the customer into thinking they’re getting a good deal. The reality is that they aren’t.
How to Ensure You Choose a Safer Credit Card Option
1. Perform a credit cards comparison
With so many search engines online now, it has never been easier to perform a legitimate credit card comparison search.
Do some homework before you make that final card decision. Write a list of what you’re looking for in a credit card and aim your search around this.
Look at the customer ratings and value for money section of the comparison charts. Note all the benefits and, indeed, potential drawbacks of all providers.
2. Find out what your credit cards APR is straightaway.
Once you know the APR, make sure it remains this way throughout your contract term.
Look at the current APR average and consider what is about right at that time. If you see those advertised much higher, avoid these, for this is a red flag.
Furthermore, ensure that what you are quoted at the beginning of your search for APR is what you will definitely get when applying.
Some credit card providers will quote the APR as a range. So, you may not always receive what you initially saw advertised.
Thought this can very well be due to personal factors and circumstances, it does pay to know about this change before proceeding.
3. Read all the terms and conditions looking for any hidden rates before signing your credit agreement
Those risker credit card providers are quite good at the rhetoric they use in their sales pitches.
So, it’s often not until you’re signed up having skipped the T’s & C’s that you find yourself being charged for more items. These are the items you perhaps had no idea existed until now.
Make sure there are no hidden costs or fees tucked away in that black and white sheet.
This can be anything from penalty APRs to missing payment charges and foreign transaction fees as a start.
4. Understand that those cards with an introductory zero APR rate will eventually start charging you this at some point!
A common error many people are guilty of is forgetting that once the APR free year is over, the next year will start to accumulate such interest.
For some, this can come as a bit of a shock. That is, especially if they weren’t expecting any extra charges that month!
So, it is those years you need to ensure you know exactly what APR you will be paying. You don’t want to be hit later on down the line with increasing rates, so make sure it’s confirmed before taking on the card.
5. Consider whether those special offers really are worth it
If your credit card attracts an annual fee, as some will, investigate if it’s worth it.
This means looking closely at the rewards that you are likely to earn from having this card. Then see if they outweigh that of the required fee.
If they don’t, it’s not worth the extra costs and means you’ll be paying more for having a card that offers you little incentive or rewards back as a result.
What You Can Avoid by Bypassing Those Risky Credit Card Types
By making a conscious effort to steer clear from risky credit cards, you can prevent financial problems later.
Unfortunately, many people will fall victim to risky credit cards for several reasons.
These include being so desperate for credit that they will take on the first card that accepts them.
Some people with bad credit will also be so grateful for an acceptance decision on their application. This means that they will ignore the warning signs mentioned above.
Then there are those people who see reading terms and conditions as a waste of time. So, they fail to see what is waiting for them after signing their credit agreement!
Whatever the reason, getting stuck with a risky credit card can lead to financial instability long-term. This is especially so when people find themselves trapped in these lousy contracts, unable to see a way out.
Final Thoughts on Those Riskier of Credit Cards
In conclusion, the reality is that there are simply some risky credit cards that should be avoided as much as possible.
Because of this, you should never merely accept a card with questionable terms.
If you are currently facing a challenging financial time, a risky card will only make this situation worse.
Worst of all, these types of risky credit cards seem to prey more on those more vulnerable financially.
For this reason, it stands to reason that doing your homework before you commit to a credit card is vital.
This includes making sure that all the rates and charges are known beforehand. It also means making yourself aware of the accompanying terms and conditions for future reference!
Then, and only then, when you have all the facts in front of you, can you make a good credit card decision.