Secured credit cards have long been the method of choice for building or re-building credit. Consumers with no credit or bad credit could simply pay the deposit for a secured card and begin proving their ability to make payments on time by using the card wisely.
As that wise use was reported to the credit bureaus, the consumer began to build a good credit score. They’ve been easy to get because they present zero risk to the card issuers.
So why, all of a sudden, are banks discontinuing them?
Two reasons:
• They don’t provide a high revenue
• They no longer want to associate with people who need them
That sounds a bit harsh, doesn’t it?
We know that card issuers are all about making money – that’s why they’re in business. It’s just become more apparent over the past few months while we’ve been watching them raise rates and fees in an effort to rake in more dollars.
Some of us have wondered about their new policies of reducing credit limits for even customers with good credit and stellar payment histories.
It almost looks as if they are using some kind of secret scoring system to determine which of their good customers could possibly become defaulting customers. And of course, they’re not very interested in consumers who pay their bills in full each month – because there’s no profit in that for them. That part makes sense.
Secured cards are generally low limit cards, so while the interest rate is high – usually at about 18 – 20% – the revenue from a small balance is still not much revenue. Often the card’s largest revenue is from the annual fee, the set up fee, the processing fees, and the usage fees.
Since the new regulations set to go into effect next year will limit those fees, many card issuers are hurrying to get out of the secured credit card business now.
HSBC, New Millenium Bank, and Bank of America do still offer secured cards – but all of their offers are not alike. So if you want one, check all the details before you apply.
Here’s what you need to look for:
• Make sure the card reports to the credit bureaus
• Comb the terms and conditions for disclosures about fees you may not expect
• Check the rates – I’ve seen from 7.99% to over 20%
• Be sure there’s a grace period – 20-25 days interest free after you make a charge if your previous balance was paid in full.
• Look for a “graduation” provision – to ensure that you can move on to a larger, unsecured credit limit after a set period of favorable use.
Author: Mike Clover
CreditScoreQuick.com your resource for free credit reports, credit cards, loans, and ground breaking credit news.
