Credit disabled consumers have always been a target for card issuers offering secured credit cards. Between the mid-80s and mid-90s a handful of card issuing banks slowly tapped into this market issuing about 1.5 million secured cards to a universe estimated at about 10 million consumers. But over the past two years this pool of credit blemished prospects has surged to about 25 million consumers and is now attracting a new breed of sharks.
In the underworld if your credit was lousy and you needed to borrow money you expected to pay a high interest rate and some kind of service fee referred to as "the juice". Typically, the juice was about 15% of the amount loaned and, in many cases, the juice and the interest charges would be deducted in advance from the loan proceeds. Today this type of loan structure is being adapted to bank credit cards, usually VISA cards. As a matter of fact, these new VISA cards are so "juiced-up" it makes mob loans look competitive.
The cards we're talking about offer credit challenged consumers an unsecured VISA card with a $250 minimum credit limit for fees ranging from $150 to $278. This does not include interest charges or other fees for additional cards or rush processing. In some cases the fees are charged to the card upfront.
What really takes the cake is that one of the VISA cards we reviewed had the gumption to promote itself as a no- annual-fee card.
Here are some examples of juiced-up VISAs:
1. The Centennial VISA charges a $119 acceptance fee, $49 processing fee, $50 annual membership fee, and a $5 monthly participation fee all for a $250 credit limit at an interest rate of 21% per annum. If you request additional cards, be prepared to pay $20 each and if you want express processing, plan on shelling out an additional $30. First year fees: $278. Estimated two year cost for a $250 balance: $493.Believe it or not all the above programs are successful. First Premier has more than doubled its account base since last summer. It's long been said there's a sucker born every minute but America must now be producing them every second.
2. The VISA Future Card charges a $98 program fee, $70 set-up fee and $5 monthly participation fee for a $250 credit limit at an interest rate of 19.9% per year. Like Centennial, the Future Card charges for extra cards and rush processing. However this card, widely advertised on the Internet, promotes itself as a no-annual-fee card. First year fees: $228. Estimated two year cost for a $250 balance: $388.
3. Home Federal VISA charges a $79 processing fee, $49 acceptance fee and a $59 annual fee for a $250 credit line at an annual interest rate of 19.92%. Home Federal goes one better than the others: there is no grace period. First year fees: $187. Estimated two year cost for a $250 credit limit: $346.
4. Cross Country VISA charges a $100 application fee and a $50 annual fee for a minimum $350 credit limit at an interest rate of 21.24%. There is no grace period, but unlike the others the interest rate is variable, prime +12.74%. This might be the bargain among juice cards since it offers an additional $100 of credit line and lower overall fees. First year fees: $150. Estimated two year cost for a $250 credit limit: $306.
5. The First Premier VISA charges a $119 acceptance fee, $49 processing fee, $50 annual membership fee, and a $5 monthly participation fee for a $250 credit limit at an interest rate of 21% per annum. First Premier of Sioux Falls, SD could be considered the king of juice cards since it also issues the Centennial VISA and the VISA Future Card. First year fees: $278. Estimated two year cost for $250 balance: $493.
If you do not have a credit history, if you have some glitches in your credit report, or worse yet, if you have filed for bankruptcy, there is no need to jump into the card shark-infested pool. The best way to build or rehabilitate your credit history is to sign up for a reasonably priced secured VISA or MasterCard. Juice cards offer consumers the hook of "no security deposit required" and "acceptance guaranteed". But the truth is, many secured cards are far less expensive initially, and over the long haul, compared to the juice cards.
Secured cards are not debit cards. With a secured card you simply open a savings account with the card issuing bank, and the bank in turn issues you a credit card with a credit limit usually equal to the savings deposit. The savings account is only accessed by the bank in the event you default.
Most secured VISA and MasterCards do not charge processing fees, application fees, set-up fees, etc. Secured card annual fees average about $35 and interest rates are fairly competitive. Best of all most secured cards pay you interest on the security deposit.
One of the best secured cards around is the Amalgamated MasterCard (1-800-365-6464). Amalgamated charges
a $50 annual fee for either a standard or gold MasterCard. The interest rate currently is 16.50% for standard and 13.00%
for gold. The minimum savings deposit is $500 for standard and $5,000 for gold. Savings deposits earn about 4% per
annum. Amalgamated also includes a special air miles program called 'AmalgaMiles' offering mileage redeemable for
discounted travel on any airline. There are no other fees, so the first year fee is a mere $50. Compared to the juice cards
the total two year cost for a $250 balance would be $162 for standard, and $144 for gold.
Other good, nationally-issued secured cards include Community Bank of Parker's VISA (1-800-779-8472); Orchard Bank's MasterCard (1-800-488-2720); American Pacific VISA (1-800-610-1201) and the Chase Secured MasterCard (1-800-482-4273).
For a complete list send $10 to Secured Card Report, Box 1700, Frederick, Maryland 21702. It's one thing to be "credit challenged" but it's another thing to be "credit stupid". Don't get juiced.
The ultimate juice card is a secured VISA card being offered on the Internet under the WorldNet Card name.
WorldNet promotes its card as a 'Secret Secured Creditcard' with all transactions and bank statements kept in offshore
banks. WorldNet requires a minimum security deposit of $300 and first year fees ranging from $210 to $3,000. (This
is not a typo.) The WorldNet charges a $150 application fee for its Classic VISA, a $250 application fee for its VISA
Gold and a whopping $2,500 for its Black VISA. The annual fees are $60 for Classic, $90 for Gold and $500 for Black.
These are all fully secured cards, unlike the juice cards discussed earlier. It gets even worse. To set the card up you must
wire your security deposit and fees to a bank in Guatemala City. The bank is Multicredit and is obviously not FDIC
insured. Incidentally, WorldNet requires a $2,000 minimum security deposit for the VISA Gold, a $25,000 minimum
deposit for the Black VISA and limits individual account balances to $10 million. WorldNet's fees for additional cards
makes other juice cards look like bargains. Each additional WorldNet Black VISA cost $1,250 initially and $250 per year.
A final word of caution this month: Don't get tangled up with credit cards marketed on the World Wide Web unless you recognize the name of the bank involved or have some way of confirming the program's legitimacy. Never, never, never fill-out an online credit card application unless you are totally comfortable with the institution making the offer and satisfied with the Web site's online security. The web is full of sharks and pirates. It's bad enough to get ripped- off with high fees but it's even worse if your private information is ripped-off for fraud purposes. Many of the cards offered to the credit challenged are being marketed by obscure firms who neither list a phone number or a physical address to make contact. And just because an offer carries the VISA or MasterCard name does not make it secure.
If you spot an offer like any of those described in this issue please send the details to: CardWatch, Box 1700, Frederick, Md 21702 or email to cardwatch@cardweb.com.
