The Federal Trade Commission (FTC) offers American consumers some advice on secured credit cards for bad credit:
- Secured credit cards, also known as prepaid credit cards, require the consumer to open and maintain a savings account for their line of credit.
- The savings deposit required for a secured credit card can range from a few hundred dollars to several thousand dollars
- The credit line offered is based on the deposit but usually between 50% -100%
Prepaid Credit Cards Processing Fee
There may also be a processing fee, which could be around $100 and an annual fee of $50 before a secured credit card is issued (fees will vary and some have no charges).
Many have no grace period for purchases and interest is charged to the card immediately. In a trawl of a sites offering secured credit cards, interest ranged from 9.99% to 19.5% APR.
Other Prepaid Credit Card Fees
Secured credit cards will, in the same way as unsecured cards, charge a cash advance fee, late payment fee and over the limit fee.
Benefits of a Secured Credit Card
Apart from the obvious benefit of repairing a person’s credit score, some secured cards offer other incentives:
- no credit check policy
- Auto rental insurance
- Travel accident insurance
- Free companion airline ticket
- Interest applied to the deposit
- Points which can used for music downloads, ring tones, prepaid wireless service
- Paychecks can be loaded directly to the card
Credit Card Advertising
The Federal Trade Commission warns against deceptive credit card advertising, particularly the adverts that invite people to make a very expensive telephone call for information or the ones that say:
"Bad credit? No credit? No problem!"
One of the essential elements of selecting a secured credit card is to make sure the bank or finance company report to the three US credit agencies. Under the Free File Disclosure Rule of the Fair and Accurate Credit Transactions Act (FACT) Americans have a legal right to see their credit report.
Each of the credit agencies is required by law to provide one free copy of a person’s credit report every year if asked for it. The agencies are: Experian, TransUnion and Equifax
If people are in debt and having problems paying bills, non-profit credit counselors are available in each state to help. This article on How to Choose a Credit Counselor offers a range of advice.
The information in this short article is not exhaustive and does not constitute financial advice.
Sources:
Federal Trade Commission, Secured credit card marketing scam
TransUnion, Credit Dispute Facts
A number of credit card websites were trawled for information
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