People with bad credit have learned to live with a low FICO score: they’re denied most rewards credit cards and have to swallow lower credit limits and higher interest rates. Conditions have only worsened.
In the first quarter of 2010, interest rates for those with bad credit spiked from 15% to 25%. But while having poor credit has always meant accepting worse terms, there are some terms that should just never be ok.
Below are a selection of credit cards that everyone should avoid, no matter how bad their credit.
The Bad Guys
The First Premier cards: First Premier Bank gained notoriety with their 79.9% APR credit card, which was then replaced by a card with “only” 59.9% interest. The latest iterations of their sky-high interest rate cards are the Aventium and Centennial credit cards.
Despite having two names, they are effectively the same card. In the first year, the card has an interest rate of 49.9% – double the average for bad credit cards – and a low $300 credit limit. The card charges a $75 annual fee in the first year, which at 25% of the credit limit is the legal maximum allowed by the Credit CARD Act. After the first year, when the act’s protections end, the card’s annual fee is lowered to $45 a year but supplemented by a $6.50 monthly fee, adding up to $123 a year.
A host of other fees lie in wait for an unsuspecting cardholder: 3% cash advance and foreign transaction fees, which are industry standard but take effect only in the second year to avoid the federal fee cap; a $3.95 one-time online banking fee, which most banks actually encourage with lower fees or rewards bonuses; and every time the credit limit is increased, a charge of 25% of the increase.
Finally, in the fine print, the cards note: “Some of these setup and maintenance fees will be assessed before you begin using your card and reduce the amount of credit you initially have available. Based on your initial credit limit of $300, your initial minimum available credit will only be about $225.” What First Premier is telling you is that you’ll be paying $75 in fees for a $225 credit limit.
Net First Platinum: While the Aventium and Centennial offer only poor terms, the NetFirstPlatinum.com card could be construed as an outright scam. The card offers a $500 unsecured credit limit, no credit check and a 0% introductory APR, and it “reports to a major bureau.”
All marketing taglines meant to rope in unsuspecting victims.
A close reading, though, shows that the card’s available balance is applicable only at the Horizon Outlet, their affiliate website. The card doesn’t report to any of the credit bureaus that actually matter, so using the Net First Platinum won’t raise your credit score. Buried deep in the disclosures is this admission: “Nor does Horizon Card Services attempt, or claim to attempt, to establish, re-establish or repair any customer credit history.” The Internet Crime Complaint Center is filled with consumers who got roped in by the Net First Platinum scam.
Prepaid debit cards: Prepaid debit cards often claim to report to “major bureaus,” and tout themselves as a responsible way to avoid overspending or stick to a budget. However, none of the major credit rating agencies will factor a debit card into credit score calculations, making the first claim irrelevant.
As far as promoting good financial behavior, a regular checking account will accomplish the same goal without all the miscellaneous fees. While free checking accounts are becoming harder to find, even those that charge monthly fees won’t charge the additional ATM, reloading, transaction, and other fees that accompany a typical prepaid debit card. A major selling point of prepaid cards is that they require no credit check, but again, neither do regular debit and ATM cards.
The Good(ish) Guys
Secured credit cards: A secured credit card requires an upfront deposit equal to the credit limit, but is far more accessible than a regular, unsecured card. Because (theoretically) anyone can qualify, it often falls under the pre-approved credit card category. There’s no income requirement, and both Orchard Bank and Capital One will consider applicants immediately after bankruptcy. In fact, Orchard Bank will approve anyone who can post collateral.
Orchard Bank: Orchard Bank, a subsidiary of HSBC, caters to those with bad or no credit who might otherwise have difficulty qualifying. Their Orchard Bank MasterCard is about the easiest card to qualify for, and requires an income of only $12,000. However, it has a high annual fee: combined with processing fees, it works out to $68 the first year and $59 thereafter.
Credit unions: While getting an unsecured card might be difficult all around, credit unions tend to offer lower interest rates and fees than traditional for-profit banks. And many will extend credit cards to members with lower than average credit scores. The Spectrum Federal Credit Union, for example, offers the Visa Creditbuilder to help establish or rehabilitate credit.
This is a guest post from Jake at NerdWallet.com. If you’re looking for a good balance transfer card, be sure to check out them out. I think that NerdWallet is one of the best sites for recommending the best credit card offers for your needs.
My name is Jeff Rose and in my life I've trained with the U.S. Army to be an Infantry soldier. In my professional career I've trained to be a financial planner. The recent financial catastrophe brings to light how so many people have become victims of their poor financial management. I combine the discipline of my army training with the rigors of my financial planning experience to help people do something about it. I want to help you become a Soldier of Finance and take control of your life and personal finance today. To read more about me, please check out my