| If you've had credit problems, then you've probably | | | | "questionable" rather than being a full-on scam. There |
| received offers for credit cards aimed at people with | | | | are much worse offers floating around out there. I've |
| bad credit. These offers range from legitimate, to | | | | even seen some "deals" where the fees are so stiff |
| questionable, to outright scams. How can you tell the | | | | you start out above the credit limit before receiving the |
| difference? The answer is to read the fine print, usually | | | | card in the mail! In the bogus category I'd also include |
| to be found in a document called "Terms and | | | | cards where you are forced to pay an advance fee |
| Conditions." To show you the difference between "the | | | | prior to receiving the "guaranteed" credit card, which of |
| good, the bad, and the ugly" in the low-end credit card | | | | course never arrives. There are also "catalog cards," |
| market, let's take a look at the fine print associated | | | | where you supposedly build credit by purchasing items |
| with such offers. | | | | through a card tied to one particular company and their |
| We'll start with one of the more popular low-limit | | | | catalog of goods. The problem is that the catalogs |
| "starter" cards available today. These are actual terms | | | | usually consist of grossly overpriced junk. |
| published by a major company at the time this article | | | | So what constitutes a good credit card offer for |
| was written. The card comes with a Visa logo on it | | | | someone who's experienced serious credit problems |
| and looks like a regular credit card, so you can use it | | | | and wants to take action toward rebuilding his or her |
| as an extra piece of identification when you're booking | | | | credit? At the risk of annoying the big credit card |
| a hotel room, renting a car, and so on. In the "Terms | | | | marketing companies who target the "sub-prime" |
| and Conditions" document, the first thing we see is the | | | | market (consumers with bad credit histories), my |
| annual percentage rate (APR), listed as 19.5%. That's | | | | advice is to completely avoid any offer that comes to |
| not a particularly attractive rate, but it's not as high as a | | | | you unsolicited. Instead, do the research on your own. |
| lot of other cards. A little farther down, we see that | | | | Check out for current offers by legitimate credit card |
| the APR for cash advances is higher, 25.5%, which is | | | | companies. Shop and compare before you apply. |
| normal since there is greater risk involved to the | | | | Remember, the APR is only one aspect of your |
| company. | | | | decision, and not necessarily the most important. What |
| Where it really gets interesting is the section that lists | | | | you want to look at very carefully are the annual fees, |
| the fees associated with the card. In this example, | | | | setup fees, and monthly fees. |
| there is an annual fee of $150! There is also a $29 fee | | | | It's important to realize that you may not be able to |
| to open the account, as well as a monthly | | | | obtain an unsecured credit card when you're just |
| "maintenance" fee of $6.50. Whew! That's a lot of | | | | starting to rebuild your credit. Instead of paying $257 to |
| fees. But wait! It gets better. Toward the bottom of | | | | obtain $300 in credit, you'd be far better off placing |
| the document, buried in the fine print, we see | | | | $250 as a deposit toward a good SECURED credit |
| something called "Available Credit Limitations." In 8-point | | | | card from a reputable major bank. In this real-world |
| typeface (very tough to read on a computer screen | | | | example, the annual fee is only $29, the APR is |
| or printed page), you are informed that your generous | | | | 19.99%, and there are no setup fees or monthly |
| initial credit limit will be a whopping $300. On your very | | | | maintenance charges. Your $250 deposit will net you |
| first statement, you will be billed for the $150 annual | | | | $250 worth of credit (less the $29 annual fee), and |
| fee, plus the $29 setup fee. The $6.50 monthly fees | | | | you'll build positive credit history just as quickly as with |
| will start appearing after you make your first purchase | | | | the ridiculously expensive offer discussed above. Plus |
| on the card. | | | | that original $250 deposit is still YOUR money. After |
| Let's take a closer look at the math here. It will cost | | | | you've been granted unsecured credit again, and |
| you $179 up front, plus $78 per year, to obtain $300 | | | | you've paid off any outstanding balance on the |
| worth of credit. Your total cost for the first year is | | | | secured card, you can get your deposit back. |
| $257, assuming you pay off the balance each month | | | | One final tip. If you have the opportunity to join a credit |
| and don't incur any regular interest charges. Sound like | | | | union, you should consider checking out their offers for |
| a good deal? Does it make any sense at all to pay | | | | low-limit unsecured and secured credit cards. Credit |
| $257 to obtain $300 worth of credit? That's 85.6% in | | | | unions frequently offer much better terms than regular |
| effective interest! If you keep a running balance of | | | | commercial banks. Through credit unions, you can |
| $300 on the card, and just make the minimum | | | | often find credit cards with no annual fees, lower |
| payments every month, your effective interest rate will | | | | interest rates, and more flexibility. Be sure, however, to |
| be 105.2% for the first year, and 95.5 % for | | | | confirm that the credit union reports account activity to |
| subsequent years. That's some pretty expensive | | | | the credit bureaus. Otherwise, your positive payment |
| credit! This credit card offer, while legal, still counts as a | | | | history on the new credit card won't lift your credit |
| total rip-off. | | | | score. And remember, no matter what card offer |
| As bad as the above sounds, it still only qualifies as | | | | you're considering, be sure to read that fine print! |