Subprime credit cards a double-edged sword

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Nearly 35 percent of 360,000 low-limit (subprime) cardholders over a 2-year period boosted their credit scores, according to a study released by Citizens for Equal Access to Credit, a multicultural nonprofit coalition. A small percentage of users even gained access to cards with higher limits. The organization, concerned “about the impact of the Fed’s proposed rule on continued access to credit,” claims that these cards are an effective way to access and repair credit.

But there is a cost. Credit experts warn that issuers of low-limit credit cards often charge higher fees and interest rates. Know, too, that use of the cards can reduce credit scores, because consumers often use a high percentage of their available credit. But Cate Williams of Money Management International, a nonprofit credit- counseling agency, says that you can boost your score through these cards by consistently paying your bills. The ratio of available credit to debt only comes into play with regard to your credit score when you apply for more credit. So, Williams advises not applying for more credit if you have debt on your card.