Secured
Credit Cards
Help Rebuild Credit,
But Read Fine Print Carefully
by Robert K. Heady
Bank Rate Monitor
You
know what secured credit cards are, don't you?
They're the cards for
folks trying to rebuild their damaged credit history, or those
who can't get a standard card because they've never established
credit before.
The twist is that although
a secured card walks, talks and quacks just like a regular card,
it operates like a secured personal loan. You deposit money into
a savings account or a CD, as collateral against a credit line.
The bank grants a line of anywhere from 50 to 100 percent of
the amount of your required deposit generally $300 to $400, but
it could be several thousand dollars. You enjoy the same charging
privileges with a secured card as with standard plastic, but
you can't touch any of the money in the account, which typically
earns a small amount of interest.
Almost anyone can get
a secured card, enabling them to charge meals at restaurants,
rooms at hotels and rental cars just like the hoi polloi do.
That's a lot better, says one card hustler, than "being
rejected, hurting your self-image, and feeling that you're a
second-class citizen."
All that most card
issuers insist on is that you be at least 18 years of age, resident
of the United States, have a valid Social Security number, and
earn at least $95 per week. But you'll likely get turned down
if you haven't paid your bills on time over the past six months,
have been convicted of credit card fraud, are filing for a new
bankruptcy or haven't discharged an old one.
Average Joes and Janes
who carry secured cards hope and pray that, if they keep making
their monthly payments on time for maybe six months to a year
it will show up on their credit reports. They may then qualify
for a regular credit card and an even bigger line of credit,
say, $2,000 to $5,000 or higher.
The upside to all this,
of course, is that a secured credit card, because of its limited
credit line, forces discipline on consumers with bad spending
habits. That reduces the chance of getting in over the heads
in debts.
A downside is that
while secured cards are a gangbusters way to reestablish credit,
some of the outfits that peddle them "make deceptive advertising
claims to entice you to respond to their ads," according
to the Federal Trade Commission. If you believe all the promotions
you get in the mail language like "Guaranteed approval,
no credit checks, and no turndowns" you'll think these cards
are a snap.
Want to bet?
Read the flyspeck-sized
print more carefully. Odds are that many of these deals will
hit you with up-front charges such as a one-time $98 "program
fee," a $90 "application" or "processing"
fee, and a $70 "set-up" fee. That's not counting the
stiff annual fee you pay on top of everything else. Plus, you
get clobbered by all the same fees and penalties as with standard
cards cash advances, late payments, over-the-limit fees, you
name it.
"Sometimes the number is not toll-free," reports the federal agency. "A '900' number service, for which you are billed just for making the call, may instruct you to give your name and address to receive a credit application, or give you a list of banks offering secured cards. It also may tell you to call another `900' number at an additional charge for more information."
The cost of the `900' call can range from $20 to $50 or more, says the FTC. And the con guys' ads may leave out all the critical info, such as required security deposit, application and processing fees, and a higher-than-average interest rate. Also beware of cards offered by "credit repair" companies or "credit clinics" that offer to clean up your credit history for a fee, adds the agency.
You can apply for a secured credit card online through "matchmaker" Web sites like Apply-for-credit-cards.com, VipCredit.com and Abacusmortgageloans.com, which will put you in touch with card issuers for a fee.
But perhaps the practical way to begin is with independent surveys by Bankrate.com: Click onto "credit cards," then compare the best deals on secured cards nationwide. The listings show the fees, minimum deposit, line of credit and all the banks' toll-free numbers.
Editor's Note: Robert K. Heady is the founding publisher of Bank Rate Monitor and is the co-author of the book, "The Complete Idiot's Guide to Managing Your Money." You can e-mail Mr. Heady at jrnl8888@aol.com.
