Back to Credit Education

Subprime Credit Cards

Sub-prime credit cards are geared towards consumers with a poor credit history and offer consumers a chance to improve their credit rating while enjoying the benefits of using a credit card.

On the spending side, sub-prime cards work the same way as a prime card - simply swipe, sign, and go when making purchases.

The difference is that sub-prime cards generally cost more due to more fees and a higher interest rate - also known as the annual percentage rate (APR).

To be fair, a high APR can be painless for the cardholder if the account balance is paid in full every month by the due date, avoiding any interest charges at all. Most credit cards have an interest-free grace period for purchases but not for cash advances or convenience checks.

Sub-prime cards tend to have a number of fees related to opening the account or keeping the account active, such as a one-time processing fee, an annual fee, and possibly a monthly service fee.

Penalty fees can be applied for late payments or for spending more than the credit limit, and it’s not just sub-prime cards that charge them. Cardholders who pay close attention to their payment due dates and account balances can avoid these charges completely.

Any fees will be applied to the credit card’s balance when they are due - some of them will be due immediately upon opening the account.

Ideally, the sub-prime cardholder will improve their credit after a period of time - maybe a year or two - of responsible spending and on-time payments. The consumer may then qualify to move up to a credit card with lower costs and more benefits.

For any credit card, sub-prime or otherwise: Consumers should carefully read and understand the terms and conditions before opening an account.