Subprime cards-used wisely-offer path to better credit

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More than 70 million people in the United States qualify for subprime cards, according to an August 2008 study. While most people wisely avoid these cards — which feature low credit limits, high annual fees and sky-high annual percentage rates — they are one of the best ways for consumers to establish, improve or repair their credit histories before graduating to more attractive cards, experts say.

“Low-limit credit cards are a great way to get in the credit game, says Steve Bucci, president of the Money Management International Financial Education Foundation and author of “Credit Repair Kit for Dummies.” “If you’re new to credit and have no history, you’re going to build it very quickly — if you take some precautions.”

Lenders will take a chance on high-risk users by offering cards with credit limits of $250 or $500 and APRs which typically exceed 20 percent. These cards have long been one of the best tickets to building a shinier credit report — as long as cardholders mind their credit Ps and Qs. In fact, at least 35 percent of users of low-limit, or subprime credit cards improved their scores within two years, and more than 60 percent of that group increased their score by 40 or more points and earned a credit limit boost, according to an August 2008 study by Citizens for Equal Access to Credit, a Washington, D.C., based nonprofit working to ensure low-income Americans have fair access to credit.

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