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