Credit Card Companies’ Questionable Practices

Have your credit card rates been hiked for no apparent reason? Or maybe your credit limit’s been reduced or one of your accounts has been closed. If so, it’s possible you were a victim of a form of profiling that in effect punished you for your prudence.

Suppose, a couple of years ago, you had responded to the recession by being less extravagant. Maybe you bought some casual clothes from the sorts of store you wouldn’t normally have frequented during better times. Perhaps you purchased a lovely antique gift from a pawn shop instead of your usual jeweler. You might even have spotted an ad for retread tires and chosen those for your second or third car; the one you only use around your neighborhood anyway.

Well, many would say, good for you. If only everyone had been that responsible, the country might never have gotten itself into such a mess.

Credit Card Use Monitored

Many people might have said that, but not some bankers. According to a new report from the Federal Reserve, at least six credit card companies have in the last few years been spying on their customers’ shopping habits, and far from applauding such examples of responsible spending, they have been regarding them as a sign of troubled finances and lower creditworthiness.

And so they used such prudent spending as an excuse to hike credit card rates, slash credit limits, and/or close accounts.

Losing Credit Cards

Of course, it’s not just changes in credit card use that can result in a closed account. Yesterday’s Los Angeles Times included a letter from a reader whose husband had recently lost one of his credit cards on the grounds, his bank said, that “the account does not have a high enough credit limit.” And that was in spite of payments always being made on time and usually clearing the balance in full. Go figure.

Credit Card Rewards Taking Off

Some people want just one thing from their credit card rewards program–free, or very nearly free, flights. If you’re one of them, you’d have been interested in a feature in the San Francisco Chronicle last week, which set out to identify the “best frequent flyer credit cards.” Depending on your needs, there were two outstanding recommendations in the article, both from American Express.

The first recommendation was for an airline-specific card, the Gold Delta SkyMiles® Business Credit Card from American Express OPEN. Right now, the first year’s annual fee is being waived. You have to pay a $95 annual fee each year after the first, but you get a free $99 companion ticket with every renewal, so that takes out the sting. You get 20,000 bonus miles with your first purchase, then two miles for every eligible dollar spent on qualifying Delta and Northwest flights, and one mile for every other eligible dollar spent.

According to its website, the Starwood Preferred Guest® Credit Card from American Express allows you to “redeem the Starpoints® you earn for nights at 940 Starwood hotels and resorts in 93 countries, or fly on hundreds of airlines with no blackout dates.” And it has a lower annual fee ($45), which again is waived for the first year.

Which you prefer depends on your lifestyle and credit card use, but whatever rewards program you eventually choose, be sure you understand how the scheme works before you sign up. Not every offer is as good as these, and some can contain nasty surprises.

Credit Card Terms Under Microscope

Back in September 2006, the U.S. Government Accountability Office (GAO) published a 114-page report about credit card trends and use. Reading it today, you’re reminded of two things:

1. How much credit card terms have changed
2. How quickly most of us have forgotten how things used to be

Credit Card Rates: Up or Down?

For example, were credit card rates higher or lower in the good old days? Well, the answer to that one depends on who you are (or, more precisely, how healthy your credit score is) and how good you are at managing your money.

But, for most credit card users, rates today are lower. The GAO report points out that, before about 1990, nearly all credit cards charged a single, fixed rate of about 20 percent, and levied very few fees and penalties. Today, according to Indexcreditcards.com, the average credit card rate is 16.74 percent.

However, anyone with a good credit score should be able to get a much lower rate than that, while anyone who has been late making monthly payments or who has exceeded their limit could easily be paying interest that is almost twice as high.

Credit Card Companies, Terms, and Complexity

One of the side effects of this re-engineering of their revenues by credit card companies is a very considerable increase in the complexity of the deals on offer. And this, some believe, means that very, very few consumers have a real understanding of the contract they’re entering into when they sign a credit card application.

After all, who, other than a lawyer–and a geeky lawyer at that–actually reads credit card terms and conditions? And how many of us could easily find a copy of our card agreements?

Well, actually, almost all of us. Because, starting earlier this month, the Federal Reserve’s website now hosts a searchable database that contains about 1,000 standard credit card agreements. So all the different ways in which your card issuer is entitled to gouge you is now likely to be a matter of public record.

When Credit Card Companies Are Good Guys

Earlier this week, the New York Times pointed out that some credit card companies have already moved to make their agreements more comprehensible and accessible. And it singled out Bank of America and Chase Bank for special mention.

Chase, in fact, revised its credit card terms and conditions very soon after that 2006 GAO report was published. If you’d prefer to carry a card from a company that’s demonstrated its commitments to its customers’ interests, then you could check out these Chase products:

• Chase Sapphire Preferred Card–zero annual fee in first year, and huge bonus points offer
• Slate from Chase–comes with a whole set of excellent tools to help you manage your money better
• Chase Ink Bold–a business card offering good rewards, and a flexible spend capacity

Credit Card Debt Down; Credit Card Defaults Up

How does that work? Well, when the Federal Reserve published its March data for consumer credit earlier this month, the figures showed that, nationally, credit card debt had dropped from $935.1 billion in the first quarter of 2009 to $852.6 billion in the same period this year. So that means that Americans have paid down their credit cards by $82.5 billion in a year, right?

Wrong. A whole chunk of the reduction is a result of credit card companies writing off balances as uncollectible and passing the debts to collection agencies. That’s why, exactly two weeks after the Fed’s figures were published, the New York Times was reporting the latest edition of the Standard & Poor’s/Experian Consumer Credit Default Indices. The Times said that these showed:

…that in the three months through April the default rate on credit card loans had climbed to 9.14 percent, the highest since the index began to be calculated in 2004.

Credit Card Debt Uniquely Bad

This bad news was contained in a report that suggested that other sorts of debts were performing better. For example, fewer defaults are being seen in both mortgages and auto loans.

It’s credit card debt, alone among the main categories of consumer credit, that is showing higher levels of default. And that fact is made only more worrying when you find out how the figures are calculated. Mortgages and car loans are classed as being in default when they are more than three months past due. Except in special circumstances, credit card companies don’t regard accounts as defaulting until they’re six-months overdue.

Credit Card Regulation–One Year On

It’s almost exactly a year ago that President Obama signed into law the Credit CARD Act of 2009. Most of its provisions only came into force in February, but the Minneapolis-St. Paul Star Tribune thought that this last weekend would be a good opportunity to make an initial assessment of the effectiveness of this new wave of credit card regulation.

Speaking of complaints from readers of higher credit card rates and fees, lower credit limits, and canceled cards, the Star-Tribune’s Chris Farrell commented:

Credit card issuers blame the new regulations for their actions, and it’s true that they can’t continue some profitable business practices that relied on taking advantage of consumer naïveté. The primary culprit, however, is that credit card issuers are under financial pressure. Defaults and late payments are hurting the bottom line.

Credit Card Deals–Some Hot Tips

Some newspapers have recently been highlighting good credit card deals, and IndexCreditCards is happy to pass on a couple of stand-outs.

First up is the Chase Freedom Card, which was mentioned last week in the Wall Street Journal. The report pointed out that the card “…gives you back $100 if you put $799 on your card in the first three months you have it. There’s a 0% introductory interest rate for the first year too.” And it contrasted the Chase Freedom scheme with other credit card rewards programs that it accused of being “hefty to climb.”

Balance Transfer Credit Cards

Then, yesterday, the Philadelphia Inquirer took a look at balance transfer credit cards. It particularly liked the Citi Diamond Preferred Card. You have to pay a three percent fee when you transfer a balance, but after that you get a zero percent introductory rate that lasts for a full 18 months.

The Inquirer quoted one expert on credit cards who remarked about this product: “Essentially, you’re paying three percent for a year and a half. It’s hard to beat that.” And he’s right. As credit card rates go, that’s an exceptional offer.

Credit Card Regulation on Cards?

Credit card companies were reeling Thursday evening after the U.S. Senate passed a financial regulation bill that many in the industry expect to have far-reaching consequences. A weeks-long process of reconciliation now begins with a House bill that covers similar regulatory territory. The White House plans to be closely involved in those negotiations.

Credit Card Rates May Escape Controls

Although amendments designed to cap or control credit card rates were not passed, card issuers are concerned about other provisions, including the creation of a new regulator. The Senate proposes that this should be a new office within the Federal Reserve, but Congress wants to create a stand-alone agency. Either way, it’s not good news for credit card companies.

Yet more worrying for the industry is the Senate’s move to moderate so-called “interchange” or “swipe” fees that merchants pay to Visa and MasterCard every time a debit card is used. If, as planned, these must in future be “reasonable and proportional” to the transaction processing costs then this will cost banks’ card divisions dearly. What the industry really fears is that interchange fees on credit card use will also be regulated, a move that BusinessWeek, quoting an analyst’s note, described as “inevitable.”

Interchange fees on debit and credit card use are said to have amounted to close to $50 billion in 2008, a sum that even bankers regard as worthwhile.

Credit Card Deals to Suffer?

Writing in Forbes, one industry insider, Bill Hardekopf, observed:

Banks say they charge the interchange fee to cover operating costs to process credit card transactions, to maintain the processing network, and to protect against fraud. They warn that if the interchange fees are cut, they will have to find other ways to recoup these costs. This could force them to once again squeeze credit and raise the cost of credit cards at a time when economists and retailers are hoping for looser credit to boost the economic recovery.

As we discussed in the last of these columns, the amount retained by Visa and MasterCard to pay for transaction processing and maintaining the network is small (about nine cents a dollar), while roughly 87c is passed on to the card issuer to help pay the companies’ outgoings and to fund “extras” such as credit card rewards programs.

If that income stream is reduced, credit card companies will have to charge customers in other ways to keep afloat.

Prepaid Credit Cards an Answer?

You may think that the best way to avoid all the cardholder issues that new credit card regulation is likely to implement would be to switch to a prepaid credit (or–more accurately–debit) card. One thing’s for sure, you won’t have to pay any interest, because you won’t borrow money on one of these. And you can obtain one pretty much regardless of your credit score.

But, last October, the New York Times ran a long feature about how some prepaid card issuers gouge their customers with outrageous fees. So it’s very important to make sure you fully understand the terms and conditions before you sign a credit card application for one of these.

One to look at is ACE Visa Prepaid Debit Card. This doesn’t charge for direct deposits, so there’s no fee for having your paycheck or benefits deposited directly into your account. This card could also be particularly good if you live close to an ACE store, because withdrawals there are generally free. The ACE Pink Visa Prepaid Debit Card offers a very similar deal and supports breast cancer research.

The Mango™ MasterCard® Prepaid Card seems to be a remarkably inexpensive prepaid card, with extremely reasonable fees, many of which are actually zero. The Mango website says: “Free card, no transaction fees, no activation fee. Load $500/month to waive the $5 monthly fee. It’s only $0.50 to send money with your mobile phone.”

Last Thursday the U.S. Senate approved a controversial amendment to a financial reform bill making its way through Congress, with a 64-33 vote to limit the amounts banks can charge retail merchants for debit card transactions. In addition, the amendment would give retailers the freedom to give discounts to consumers that use cash or who use types of cards that the retailer prefers, as well as allowing retailers to refuse to accept cards for smaller purchases. Currently retailers must abide by credit card company policies that forbid them from charging credit card customers more than cash customers or from setting thresholds on card purchase amounts.

Thursday’s vote is not the final word on the matter, however. The Senate bill will have to be reconciled with a similar financial reform bill moving through the House of Representatives before the bill goes to President Obama for a final signature. The House bill does not currently have any language related to limiting card fees for merchants, so the amendment still may not survive the bill’s final writing.

The fight over fees that retailers pay on debit card and credit card transactions has been raging for a number of years, with merchants arguing that the card companies and issuing banks are raising fees without any discernible difference in the service being provided, while the card industry argues that merchants want it both ways, getting a valuable service without paying the costs necessary to keep the system operating smoothly. While merchants are pleased with the Senate amendment’s passage, neither side scores a complete win, as the amendment calls for the Federal Reserve to mandate debit card fees that are “reasonable and proportional” to the costs the card networks incur, but it does not limit fees on credit card purchases.

It will likely be months before the final bill makes it to President Obama. The card fee amendment is just one small part of a far-ranging financial overhaul bill that will affect a variety of industries, and the fight to insert and delete certain regulations will be fierce.

Credit Card News (In Disguise)

Last week, the U.S. Senate shocked credit card companies when it passed an amendment that tasks the Federal Reserve with ensuring that the fees (called “interchange” or “swipe” fees) that merchants have to pay on every MasterCard and Visa debit card transaction are “reasonable and proportional” to processing costs. American Banker magazine described the proposed regulation as “a major blow to the industry.”

This move may, if ultimately enacted, directly affect only certain debit cards (not credit cards), but Friday’s New York Times wasn’t alone in thinking that the most likely consequential outcome would be the cutting back of some credit card rewards programs.

Credit Card Rewards and Debit Card Swipe Fees–the Connection

To some extent, the credit card companies and banks have only themselves to blame for the situation they find themselves in. They run extraordinarily expensive operations, with enormous budgets for marketing, IT, premises, accounting, executive bonuses, and so on. Then, on top of that, they take–most years, at least–huge profits.

And yet they pretend that they have discovered some form of commercial alchemy that allows them to make gold out of nothing. Because they pretend that there is such a thing as free banking, and free credit card use. The reality is very different. Someone pays, but it’s usually the less well off.

Swipe fees are, it could be argued, an especially regressive form of private sector sales tax in that all customers (not just credit card users) pay for them through higher prices. Assistant Senate Majority Leader Dick Durbin (D-IL) claims that these fees totalled–for debit and credit cards–$48 billion in 2008. Meanwhile, The Nilson Report calculates that, for debit cards alone, they amounted to $19.71 billion last year, of which Visa and MasterCard retained only about 20 percent. The rest, some $15.8 billion, was passed back to the banks and card issuers to cover some of those astronomical outgoings and particularly to pay for credit card rewards programs.

Some Credit Card Rewards Programs Unaffected

The Senate amendment is selective in that it will only apply (if it ever becomes law) to debit cards carrying the MasterCard and Visa logos. That means that American Express and Discover, both of which have their own payment processing networks, are likely to be unaffected.

So, if you’re thinking of making a credit card application, and are looking for a rewards program that is less likely to be changed if and when the new amendment becomes law, you should perhaps focus on the latter two issuers.

Credit Card Offers from AmEx and Discover

First up is the Discover® More® Card – Black. This has no annual fee and an introductory, zero-percent annual percentage rate (APR) that lasts a generous nine months. And this year it’s offering a full five percent cash back bonus on different sorts of goods and services in different quarters. Click the link for full details.

To discover more about the American Express® Preferred Rewards Gold Card, click on the link. The annual fee on this one is chunky ($125), but you do get a lot for that, including 24-hour roadside assistance and hard-to-get tickets for major entertainment and sporting events. Your lifestyle determines whether the benefits are worth the fee, but bear in mind that you currently get 10,000 Membership Rewards® bonus points just for spending $500 during the first three months of your Card membership.

Credit Card Regulation Looming?

Credit card companies must be experiencing a sense of déjà vu as they watch–just three months after the main terms of the Credit CARD Act of 2009 were implemented–U.S. Senators squabble about how best to regulate them. But it’s no delusion. Legislators really are working on far-reaching reforms that could prove as challenging for the industry as anything contained in the last round of credit card regulation.

Three amendments are currently under consideration in the Senate, and the success of any one is likely to bring on an epidemic of peptic ulcers among bank executives.

Credit Card Rates a Target

Perhaps the main target that reforming Senators have set their sights on is credit card rates–two of the three key amendments focus on them.

The first, sponsored by Senators Thad Cochran (R-MS) and Sheldon Whitehouse (D-RI), seeks to hand back to each state the right to control the interest rates (including credit card rates) paid by its citizens. If the legislation succeeds, it reverses the legal situation created by a 1978 Supreme Court judgment that said that the laws of the home state of a lender applied to lending made in other states. This prompted credit card companies to move their headquarters to states (Delaware and South Dakota spring to mind) where there were no usury laws.

The other amendment aimed at credit card rates was proposed by Senator Bernard Sanders (I-VT). This has, at least, the virtue of simplicity in that it would place a nationwide cap of 15 percent on the rates payable on balances.

Other Proposals

The third proposed reform aimed at credit cards concerns so-called “interchange” or “swipe” fees paid on every transaction by merchants for the privilege of accepting the card. These currently amount to anything between one percent and three percent of the value of the goods or services bought. That’s a cut that adds up. In 2008, it generated $48 billion. Senator Richard J. Durbin (D-IL) is proposing that the Federal Reserve should be tasked with keeping such fees “reasonable and proportional.”

A fourth and fifth amendment concern not credit cards but credit scores. The first would oblige the big-three credit bureaus to provide a free credit score to each consumer each year. At the moment they only have to provide a free credit report.

The last relevant amendment would prevent employers from obtaining credit reports or credit scores on existing or potential employees other than in closely defined, exceptional circumstances. This ban would apply even if the individual consents to the check.

Credit Card Deals at Risk?

Presumably, card issuers will marshal similar arguments against the first three proposals as they deployed against last year’s legislation. They’ll say that if they can’t charge interest in line with risk then they’ll have to issue fewer cards to risky customers. And they’ll say that capping interest rates for those risky customers will force them to increase their revenues from creditworthy customers.

As for interchange fees, they’re likely to argue that these currently fund most credit card rewards programs, and that the latter will be at risk if that revenue stream is damned.

Is Now the Time for a Credit Card Application?

It’s not yet clear whether existing customers will have an advantage if credit card rewards programs have to be reviewed. But it can’t do much harm to sign up now for the scheme that would suit you best.

So, to whom should you address your credit card application? Well, as usual, it depends on your individual needs, but there are a couple of exceptional deals out there right now.

For example, the Miles by Discover® Card. This has no annual fee and a zero percent introductory rate for six months. But, in the first year, it also offers 1,000 bonus miles for each month in which you use the card at least once. There are other goodies (click the link to check them out), but perhaps the best–miles can be used across all airlines.

The second great credit card deal is True Earnings(R) Card from Costco and American Express. Again there’s no annual fee, although you have to pay for your Costco membership. But, in exchange, you receive a $25 statement credit on your first purchase with the card. And you get three percent cash back on gas and restaurant purchases, two percent on travel purchases, and one percent on everything else.

Credit Card Debt Down Yet Again

On Friday, the Federal Reserve published its latest data on consumer credit. The figures showed that, in March, credit card debt dropped at an annualized rate of 4.5 percent. In real money, that’s a $3.2 billion reduction in one month, which brings the total fall since 2008 to $105.5 billion.

So only another $852.6 billion to go before everyone has a zero balance.

Credit Risk Index Improving

A couple of days before the Fed’s numbers were released, TransUnion, one of the big-three credit bureaus (and thus some of the guys who determine your credit score), unveiled an update for its Credit Risk Index. This fell for the first time since 2008, signaling a possible, long-awaited turnaround in the creditworthiness of consumers. TransUnion’s global chief scientist [no, really; that's his job title], Chet Wiermanski, commented in a statement:

We are cautiously optimistic that the Credit Risk Index will continue to experience small declines as consumers keep reducing their debt burden and remain current on their existing credit obligations. After experiencing one of the most tumultuous economic periods since the Great Depression, it is possible that consumers may be reluctant to take on significant debt in the near future, which could possibly temper an economic recovery.

Credit Card Trends: Consumer Spending Up

On the very same day that TransUnion was admitting–without a trace of the embarrassment that would have been appropriate–that it employs someone it calls a global chief scientist, Discover Financial Services (yes, the credit card company) revealed an index all of its own. Presumably, senior executives who work for financial services companies regard indices rather as they do McMansions–desirable, collectible status symbols.

Anyway, the press release concerning the Discover U.S. Spending Monitor says:

The Monitor – a poll of 8,200 consumers that tracks consumer confidence and spending intentions on a daily basis – jumped 5.5 points in April to 91.5 (based out of 100), the highest the Monitor’s index has been since November 2007. Overall, 34 percent, the most ever, believe economic conditions are improving.

Credit Card Trends: Offers Up

Meanwhile, the good people at Synovate (a company that “generates consumer insights that drive competitive marketing solutions”) bravely soldiered on–despite the shaming lack of visible indices–to publish the Synovate Mail Monitor last week. This reveals that American households received in their mailboxes some 481.3 million credit card offers during the first quarter of this year. That’s 29 percent up on the same period in 2009.

So which credit card companies were responsible for this large upswing in offers? Well, Chase led the way, followed by Capital One, and–surprisingly after the company so recently threatened to withdraw from the U.S. credit card market–HSBC.

Desirable Credit Cards?

So what sorts of credit card deals did the biggest mailer of offers make to tempt householders? The Chase Sapphire Card is currently offering double points on airfare booked through its Ultimate Rewards service, along with 10,000 bonus points–worth $100–after the first purchase made using the card.

Meanwhile, the Chase Sapphire Preferred Card promises you’ll receive 15,000 bonus points–worth $150–if you spend $1,000 on the card during the first three months that you have it. And both cards have a whole list of other goodies on offer.

Sounds almost as good as having your own index.

Credit Card Debt in the Genes

When researchers at the University of California and the London School of Economics teamed up to explore how genes affect some behaviors they came up with a surprise finding. People who have a low-efficiency version of the MAOA gene are significantly more likely to build up troubling levels of credit card debt.

The Spring 2010 edition of LSE Research explains:

The MAOA gene is linked to the neurotransmitters serotonin, dopamine and adrenaline, which, among other things, control mood, heart rate and cognitive ability. How efficient the gene is… influences the chances of someone being impulsive and prone to addiction.

Of course, there’s nothing to stop people overcoming their impulses through sheer willpower, but this remains an interesting insight, and one that may be of particular concern to those parents who have to help their teenage children decide what sorts of plastic (if any) to use when they arrive on campus later this year.

Credit Card Regulation and Students

As yet, there’s no generally available test for the gene, so parents still have to use their common sense to work out whether the apple of their collective eye is one of nature’s hoarders or wastrels. But they should be happy that this year, for the first time, nearly all of them have the power to determine what card their teen will carry. And that’s thanks to federal credit card regulations that came into effect earlier this year.

According to the FDIC, the new rules say that credit card companies:

…will be prohibited from issuing a credit card to a consumer younger than 21 unless he or she submits a written application that includes the signature of a co-signer over 21 or information indicating the young consumer has independent means to repay the card debt.

Before Co-Signing a Credit Card Application

If you’re a parent in this situation, you should think twice before co-signing a credit card application. Of course, if your son or daughter is great with money then the risks are low, and the benefits (in terms of the child building up a credit report early) considerable.

But beware. If your youngster can’t keep up with payments, credit card companies expect you to settle in full, and any delinquencies display on your credit report.

If you have concerns about your kid’s financial self-control, you should consider refusing to co-sign, and instead:

• Insist on a debit card (but don’t opt in for overdraft cover)
  
• Add the child as an authorized user on one of your credit cards (piggybacking)
• Make the teen use a pre-paid card (but shop around, because fees vary hugely)

Student Credit Cards–Some Smart Choices

Discover Bank has a whole wallet-full of different credit cards specifically created for students. It may be worth looking at them, but it’s probably best to start with the Discover® Student Card, which is understandably a favorite. Right now, it’s offering unlimited cash back rewards, an introductory zero percent APR for six months (followed by a sensible, risk-based rate), special cash back bonus schemes, and cool card designs, all for no annual fee.

Meanwhile, the Citi® Dividend Platinum Select® Visa® Card for College Students has similar but slightly different terms. To start with, you get a seven-month zero-percent APR introductory period. The card comes with 5% cash back rewards for 6 months on eligible purchases at convenience stores and supermarkets, gas stations and drugstores, and even for utilities and cable. After the initial 6 months, the reward is 2%, which sounds like a good deal.

Other student credit cards from these banks that are worth exploring include:

• Discover® Student Cards Monogram Collection
• Citi ForwardSM Card for College Students
• Discover® Mix Tape Student Card

Credit Card Debt Less Troubling

Regular readers of this column already know that, according to its consumer credit figures published April 7, the Federal Reserve says that credit card debt is declining fast. In fact, it dropped in February by an annualized rate of more than 13 percent.

Yet more encouraging data was released Friday by Fitch Ratings. These showed that “charge offs” (what credit card companies call write offs) dropped a little in March to 10.93 percent. Meanwhile, the number of payments that were either 30 or 60 days late also declined.

Secured Credit Cards for Rebuilding Credit Scores?

Sadly, these improvements come too late for millions of Americans who’ve found that their credit scores have been badly damaged by the economic downturn. They now face an uphill struggle as they seek to re-establish their creditworthiness.

One potentially powerful tool that can help in the rebuilding of those battered credit scores is the use of secured credit cards. But its important to make sure that you only sign up for one of these with your eyes wide open.

Shop Around the Secured Credit Cards Market

The first question to ask yourself–”Do I need a secured credit card?” If your credit score is over 500 then you still stand a reasonable chance of getting a traditional card, and, in most circumstances, you’re likely to be better off with one of those. After all, you need a cash deposit to secure the card.

Another key point is to check out all the different fees for which you could be liable. Some credit card companies are pretty good at gouging their customers (no kidding!), and see these products as cash cows. You’re unlikely to get as good a deal as someone with better credit, but that’s no reason to allow yourself to be ripped off. Shop around, and you should find a card with reasonable fees and a sensible interest rate.

The deal-breaker question to ask concerns credit reporting. The whole point of these cards is to show that you’re again capable of making prompt, regular payments. If the card issuer you’re thinking of applying to doesn’t report your activity to all three credit reference agencies (Equifax, Experian, and TransUnion) then find one that does.

Two of the Best Secured Credit Cards

One of the strongest secured credit cards currently on the market is the Public Savings Bank Secured Card. This Visa®-branded card reports to all three of the major credit bureaus, doesn’t carry out credit checks, and its website promises no annual fees or monthly maintenance fees. You even get 0% APR on purchases for the first six months.

Another card that is well worth exploring is the Applied Bank® Secured Visa® Credit Card. This impressive-looking platinum card also offers zero percent APR on purchases, no application fees, and a chance to spruce up your credit report.