Five years ago there were less than a dozen secured card programs in the country with only a handful offered on a national basis. Today more than 100 issuers offer secured card programs with more than 35 national programs. In the past twelve months the number of secured card issuers has nearly tripled. The number of secured cards issued has risen to slightly less than 700,000, more than double the number five years ago.
In the past most major issuers turned up their nose at proposals to issuing secured cards, sharing the common assessment that it was akin to bottom fishing. Now the secured card industry has attracted some pretty big fish.
Today Citibank, Signet Bank, Associates National Bank, California Commerce Bank, Chevy Chase FSB, Columbus Bank & Trust, Comerica, First Commerce Bank, First Deposit, Fleet Bank, Marine Midland and Star Banc all offer the secured card option. Dozens of credit unions, including some of the largest in the country, now offer secured VISA and MasterCards to members.
A secured VISA and MasterCard is simply a bank credit card account guaranteed by a savings deposit. Applicants with little or no credit track record are generally turned down for conventional or unsecured cards. High risk applicants with previous liens, charged-off debts, bankruptcy or repossessions are likewise denied bank cards.
Eligibility requirements among secured card issuers varies. Some issuers will only accept applicants seeking to establish credit for the first time while others will accept almost anyone short of a criminal. Other terms and conditions vary too. For example the minimum deposit can range from $250 to $2,500. The savings rate paid on the deposit can be zero or it can be as high as 5.0%, compounded quarterly. Depending on the issuer the credit line will vary from 50% to 150% of your deposit. Interest rates range from 8.0% to 21.99%. Annual fees vary from zero to $95. Some issuers will even hit you with a stiff one-time application processing fee of $100 or more.
The effect of all the pricing variables can make a dramatic difference in the cost to the cardholder. For example a typical secured cardholder with an average daily balance of $500 and a savings deposit of $1,000 can pay as little as $135 or as high as $370 during the initial two year period.
Shopping for an inexpensive secured card is a bit more complicated than searching for a low priced unsecured card and can be confusing. For example some of best secured card bargains carry high interest rates. Even though Marine Midland Bank (NY) charges a 21.90% interest rate a cardholder can save more than $170 over the 13.90% interest rate charged by First Premier Bank (SD). Likewise Key Federal Savings (MD) charges a 21.99% interest rate but beats out most other national programs because the fees charged and the savings rate paid on the deposit are reasonable.
In an effort to fully educate consumers looking for a secured VISA or MasterCard, RAM Research released a special report, February 8th, entitled: RAM Research's 1993 Secured Credit Card Report. The 24-page report covers 100 secured card programs in detail and provides helpful tips and cost comparisons. Copies are available for just $10.00 each.
Unless you've lived under a rock for the past five months you should be aware that General Motors is now offering a MasterCard which generates rebates towards a new GM car. What you probably don't know is the GM MasterCard now comes in two colors: blue and gold.
Early this month GM and Household Bank (the card's actual issuer) announced a GM Gold MasterCard. The gold program offers upscale users a lower interest rate and a higher rebate cap than the blue or standard MasterCard. GM gold cardholders will pay 13.4% or Prime +7.4% for balances exceeding $2,500 instead of the 16.4% or Prime +10.4% charged on the standard GM account. The limit on the rebate is also increased to $1,000 per year or $7,000 over seven years. Standard cardholders are limited to $500 per year or $3,500 over a seven year period. The premium program does have a premium price. Gold card holders will have to shell out $39 per year while standard cardholders continue to enjoy a free ride. Gold cardholders will, however, have the annual fee credited to their GM rebate account.
General Motors also announced it is making the "balance transfer option" a permanent feature, whereby cardholders can move balances from other credit cards and earn a 5% rebate towards a GM product. Another new enhancement is the expansion of the partner program to include Time-Warner Entertainment and Mobil Oil. Cardholders will now be able to earn a 10% rebate on entertainment products and gasoline purchases. The partner program currently includes Marriott, Avis and MCI. Incidentally there is no rebate cap on credits earned through GM's partners.
One weak spot in the GM MasterCard will soon be repaired. Effect March 1st General Motors and Household Bank is switching the method of calculating interest charges from the 2-cycle method to the traditional, and more consumer friendly, 1-cycle method. GM, and a handful of other issuers, including the Sears' Discover card, have come under fire in the past year for employing this method.
Under the 2-cycle method whenever a cardholder switches from paying off the balance in full each month to carrying a balance the interest will be computed over the previous two billing cycles or 60 days instead of one billing cycle or 30 days. If it sounds confusing you are not alone bot do not fret.
Cardholders consistently paying off the balance each month are unaffected. Cardholders consistently carrying balances are also unaffected after the first two months. However cardholders switching payment patterns could incur up to four extra months of interest per year and should avoid the two cycle method.
The nation's largest issuer is now dangling a 9.9% interest rate in front of prospective applicants. In a recent solicitation for its variable rate (currently 15.4%) standard card, Citibank is offering to send eligible cardmembers a "Balance Consolidation Kit" in March with a special, limited time offer, to lower the interest rate to 9.9%.
Cardmembers fill out a form to transfer outstanding balances from other credit cards. Once the transfer request is approved the rate will drop to 9.9% between April 4th and August 31st. The special low rate will apply to the transferred balances as well as every purchase made during the same period.
After August 31st, Citibank will revert back to the variable rate of prime +9.4% or, if the prime rate holds at 6.0% through summer, a rate of 15.4%.
Believe it or not the Sears' Discover card finally lowered interest rates, but not for everyone. For cardholders charging more than $1,000 a year to Discover the rate will drop to 14.9%; charge between $500 and $1,000 and you'll pay 16.9%; charge less than $500 per year and you'll be stuck with the ole 19.8% rate.
Since the average purchases charged on Discover is about $700 per year most cardholders should discover some rate relief.
