Monday, November 19, 2007

Credit Cards for the Despirate

22% interest, fee after fee after fee -- and some feel lucky to get it. It may be their best shot at rebuilding a troubled credit history.


In order to do many mundane activities these days, a credit card is almost a necessity.

Ever tried to open a bank account or rent a car, and the first requirement is to hand over your credit card? Even friends planning to share driving duties must flash their plastic to prove their credit existence to many major car rental agencies.

Some people just prefer the practicality of not carrying cash around all the time.

For still others, there's the peace of mind that comes from having credit readily available in an emergency.

But for the credit destitute, plastic is hard to come by.

Not everyone has offers from credit lenders stuffed in their mailbox. In fact, those with bad, little or no credit history may be yearning for even a single offer -- any offer -- to arrive one day.

When it finally does -- or when you head out in search of credit -- the "deals" can seem like anything but. First of all, high annual percentage rates, to the tune of 18%, 20%, 22% or more, are common on credit cards offered to those with poor credit.

The 9.9% APR for a card geared toward getting your credit "back on track" seems like a lucky break -- until the eye meets the fees list you're likely to encounter:

  • $29 for account setup.
  • $95 program fee.
  • $48 annual fee.
  • $72 participation fee.
  • $20 annual per-card fee for additional cards.
  • $25 fee for each approved credit limit increase.

"Look at it from the bank's perspective," says Tracey Mills, a spokeswoman for the American Bankers Association. "High risk equals high cost. The riskier you are, the higher you'll pay for credit."

But if you're willing to pay, that piece of plastic can be yours. "You can have pretty much the worst credit in the world and still get a credit card these days," says Richard M. Krawczyk, publisher of The Report newsletter.

Credit cards are available even for those who have hit financial rock bottom.

"One of the biggest surprises for consumers who've been through bankruptcy is how easy it is afterwards to regain credit," says Gerri Detweiler, author of "The Ultimate Credit Handbook: How to Cut Your Debt and Have a Lifetime of Great Credit," now in its third edition.

Where to find them

If you don't receive any offers in the mail, or if the rates and terms are unacceptable, there are many places you can search for the best possible deal -- online, by phone or in person at your local bank branch. Bankrate provides readers with interactive tools that enable you to search for low interest rate cards, as well as no annual fee cards; secured cards; student cards and rebate or frequent-flier cards. There are many more online sites you can use to search for your best possible deal.

"With more than 6,000 lenders out there, chances are most people would qualify for some type of card," Mills says.

Lenders will extend a credit hand to nearly anyone, often hoping for a long-term relationship. HSBC Bank Nevada is a good example. Their Orchard Bank MasterCard Classic "is a bridge card that enables customers who have less than perfect credit or no credit to speed their movement along the credit spectrum," says HSBC representative Rahsaan Johnson. "It gives us . . . an opportunity to reach the customer early in the process of building or rebuilding their credit. So when they're ready for a car loan or a mortgage loan, they have a history of working with us, and we hope that they will continue to do so."

Credit boost for the future

Whether you stay with the bank or not, looking at the big picture of rebuilding your credit is the right idea.

Living with what could be called a "credit card of last resort" is definitely a "bummer," says Maxine Sweet, vice president of public education at the credit bureau Experian, who writes the online consumer credit advice column Ask Max. "You know you shouldn't be there. But it's also a great opportunity to turn yourself around. You have a card now, you can manage it, and then you can move on," she says.

A good credit history is the light at the end of the tunnel, so finding the right tunnel is crucial.

Consumers who pose a high risk to lenders "are getting promotional materials in the mail," says Emily Davidson, director of communications at "But a lot of times it's not a good deal."

Often, credit card issuers will buy mailing lists from credit bureaus, asking specifically for those with credit scores in a certain range, contends Krawczyk, who is also the author of "Financial Aerobics: How to Get Your Finances In Shape" and the home-study course "Financial Aerobics: 30 Days to Financial Fitness." Those with marginal credit will most often get offers for secured cards, requiring a deposit equal to or more than the total amount of credit desired. "And then they still charge an arm and a leg on top of that," he adds.

Experts say the best bet is to research, research and research. Offers found online -- through basic searches such as "bad credit" and "compare credit cards," for example -- won't be touting their high interest rates and fees or low credit limits. But they "seem pretty straightforward about what the requirements are," says George Yacik, vice president of SMR Research, which has conducted studies on the U.S. credit card industry.

While specific offers change often, here are two lenders that have issued unsecured credit cards to consumers with poor or little credit:

Research may even reveal a card that offers rewards for purchases or online bill payment options, which have traditionally been offered only to those with decent credit but are becoming a bit of a trend at the lower end of the market, Davidson says.

Reading carefully

With any offer uncovered, just heed the fine print (which Mills says is more like "unread print"). One of those terms, for example, may state the issuer's right to raise the interest rate if the customer is even one day late on one payment, Krawczyk says.

The terms of any credit offer must be disclosed. "If you have less than perfect credit, it's even more important to read those disclosures carefully," Detweiler says.

What you find in the fine print of many offers can make your neighborhood bank seem like the most desirable lender. "Everyone focuses on the major card issuers. But if you're just starting out and you already have a relationship with a bank, with a checking or savings account, ask about their credit products," Mills says.

The big lenders, which have set rules and policies, know only what's on your credit report. A local bank may be able to see a more favorable side to your money handling, such as your avoiding overdrafts and using electronic payment options successfully.

"Carefully select who and what you trust," advises Adam K. Levin, president and CEO of, who is also the former consumer affairs director for the state of New Jersey. And never underestimate how quickly you can use the system to build a positive credit score. "If you play your cards right, it's really easy to have good credit," he says. "Although it gets kind of demonized, the system really is working in the consumer's favor a lot of times."

By Melissa M. Ezarik,

1 comment:

Jeremy said...

We'd love to get your feed back. We recently started a poll on the Best and Worst Credit Card Issuers. Feel free to stop by and give us your opinion.