“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:
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.
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.