Secured Credit Cards Sure Are Suspicious

Image taken by Adam Gault

 

“Bad Credit?–No Credit?–NO Problem!”; “900-555-1111”; “Make the Call NOW and get the credit you deserve!”; “Separated?–Divorced?–Bankrupt?–Widowed?” These are all lines that have been and are regularly used by so-called secured credit card companies. Ads like these may seem appealing to consumers who have poor credit but beware: many marketers of secured credit card companies use deceptive advertising in order to entice you to apply for credit cards, with application processes that can cost consumers hundreds of dollars. And although legitimate secured credit cards exist, companies will always charge higher interest rates and associated fees.

How Do Secured Credit Cards Work?

Secured credit cards work differently than unsecured credit cards, as the secured require consumers to open and maintain a savings account in order to “secure” their credit lines. The available credit line is typically 50 to 100 percent of your savings deposit, while a bank typically pays interest on the deposit. Secured credit card applications are also known to charge unadvertised fees, including a “900” phone call that can cost up to $50. The required security deposit also tacks on processing fees and an annual fee that includes a higher average interest rate than unsecured credit cards.

Unsecured credit cards, on the other hand, offer credit without the security of a savings deposit from the consumer. Funds are drawn from your line of credit and a consumer pays back the amount owed, along with monthly interest fees.

What to Look Out For
In order to avoid security credit card scams, consumers should keep an eye out for the following red flags:

  • “Easy Credit” Offers: No company can help you “get” credit. Consumers build healthy credit by applying for small loans from lending institutions or unsecured credit cards. In other words, you build good credit through years of fiscal discipline.
  • The “900” Number: Any company that asks you to call a “900” number is charging you an expensive caller’s fee. Consumers have been known to have paid up to $50 dollars for these phone calls, and some never receive a credit card. The bottom line: avoid making calls with 900 prefixed phone numbers.
  • Credit Repair or Credit Clinics: Although there are legitimate businesses that offer to clean up your credit history, they charge expensive fees. You can correct outdated information by contacting credit bureaus directly and free of charge.

Credit Trouble
If you find yourself in credit trouble, which might further tempt you to apply for secured credit, you can use other helpful resources and options that will not cost you any money. If you cannot receive credit on your own, you can ask a relative or a close friend who has good credit to act as your initial co-signer. After you have steadily built strong credit, they can eventually take their names off of the contract. If, however, you cannot have anyone cosign a loan, you can contact the BankCard Holders of America (BHA) to get a list of legitimate secured credit card companies. If you are facing a growing stack of bills that you cannot pay back, you can also contact a legitimate credit counseling service that will help you arrange repayment plan schedules. Each state offers nonprofit organizations that help consumers consolidate loans and arrange realistic repayment plans, and these services are free of charge.

Additional Resources
For consumers who need to address complaints and reports of secured credit card scams, they can turn to the Federal Trade Commission (FTC), which is solely responsible for dealing with all types of credit scams. Along with information on the FTC, the following list also provides helpful links that give consumers information on how to avoid secured credit card frauds.

  • CNN Money, Avoiding Credit Repair Scams: CNN offers an article with a range of helpful tips that help consumers avoid credit repair scams
  • Bankrate.com, Credit Card Rates: Bankrate.com offers average rates, features, fees and rate comparisons for consumers. It also includes information on scams, alerts, related articles and a “Frequently Asked Questions” (FAQ) section.
  • Credit Card Nation: Credit Card Nation is a public policy research on consumer credit in the United States. The website includes credit education, financial modules, a calculator, budget estimator and research reports, information which helps consumers distinguish between legitimate credit card deals and secured credit card scam applications.
  • Federal Trade Commission (FTC), Secured Credit Card Marketing Scams: The FTC works to protect consumers from frauds and scams, as well as unfair business practices in the marketplace. Consumers can file a complaint or get free information on consumer issues by visiting the website or calling toll-free at 1-877-FTC-HELP (1-877-382-4357) or 1-866-653-4261.
  • Internet ScamBusters: Internet ScamBusters provides extensive information on fraud, scams, hoaxes, as well as articles on various credit card frauds. The website also includes free e-zine and reports on credit card scams for consumers.