Financial Hardship Blogs Archives - CentSai

"Subprime" unsecured credit cards may sound scary, but they could be the answer to your prayers. Picture this. You’ve just gotten out of a bankruptcy a few months ago. Your credit is wrecked; all of your previous accounts are closed or charged off. A real horror, right? As you start to pick up the pieces, you check a credit score website and learn that yours is abysmal. You’re not surprised, but it still hurts. So, you start researching ways to rebuild your credit after a bankruptcy. You see suggestions for secured cards online. A secured card requires a security deposit (usually in the amount you want your credit line to be) before you have access to your credit line. The problem is, you don’t have the extra money in your budget. After a little more digging, you start seeing other cards advertised as “bankruptcy friendly,” unsecured (meaning they don’t require any sort of security deposit), and a great way to rebuild credit. You’ve just stumbled into the world of "ultra" subprime credit cards. Who is Their Target? Mostly people with recent bankruptcies or collections, and those with credit scores between 550 and 650. These cards seem like a godsend for people with bad credit or recent bankruptcies. You’ll often get targeted by direct mail saying you’ve been pre-approved for one of these cards if you fit their target criteria. But are these cards any good? Let’s find out. I compared five cards in this category in an attempt to determine what to recommend. During my research, I reached out to each of these companies, but have yet to receive a reply. 1. Credit One Bank Cash Back Rewards Visa Starting Limit: At least $300, based on one’s creditworthiness, or ability to pay back the money based on their credit score. Interest Rate: 25.15 percent — About six percent higher than the market average interest rate for someone that Credit Karma defines as having “bad credit”. Someone with a credit score of “good” as defined by Credit Karma (650 to 725) pays an average interest rate of 16.5 percent. With good credit, you would pay 35 percent less interest than someone using this card. Fees: $75 annual fee first year billed as one charge when you open the card, $99 each year thereafter, billed in monthly installments of $8.25. $19 per year authorized user fee (you pay if you want to have a duplicate card for someone else to share the same account), zero to $49 finance charge for credit limit increase. Grace Period: This is the time you have to pay off your balance before your account is assessed interest charges. No grace period is offered by Credit One Bank on purchases or cash advances. Quirks: The only card in this lineup to offer any sort of rewards. One percent cash back automatically applied to your statement as a credit every month. It also is the only card in this lineup without a grace period for purchases. Take that as you will. 2. Indigo Platinum Mastercard Starting Limit: $300. Interest Rate: 23.9 percent. Fees: Potential for no annual fee based on creditworthiness, but most commonly it is $75 the first year, and $99 thereafter. $25 authorized user fee. Grace Period: 25 Days Quirks: No balance transfers are available. No rewards. No opportunity for credit limit increase defined in the cardholder agreement. 3. First Premier Bank Mastercard Starting Limit: $300 to $1,000. Interest Rate: 36 percent (no, that’s not a typo). Fees: $75 to $125 annual fee based on credit limit. For credit limits between $300 and $500, there is no monthly service fee in year one. After the first year, you will be charged between $6.25 and $10.40 per month based on your credit limit. For credit limits between $600 and $1,000, you will be immediately charged a monthly fee between $5.85 and $10.40 based on your credit limit. These fees are separate from the $75 to $125 annual fee and the $95 program fee. If you request a credit limit increase (only available in the second year) and are approved, a 25 percent fee will be assessed. For example, if you receive a $200 increase, you will be charged a $50 fee. Grace Period: 27 Days Quirks: This card requires you pay a $95 program fee upon approval before gaining access to your credit line. No rewards. 4. Surge Mastercard Starting Limit: $500. Interest Rate: 29.99 percent. Fees: $125 annual fee for the first year, $96 thereafter. $10 per month account maintenance fee charged after the first year, $30 authorized user fee. Grace Period: 25 Days. Quirks: No cash advances authorized during the first 95 days. Despite being an unsecured card, you may be required to pay a security deposit of $50, $100, $150, or $500 depending on your creditworthiness. 5. Total Visa Starting Limit: $300. Interest Rate: 29.9 percent. Fees: $75 annual fee for the first year, $48 thereafter. $6.25 per month processing fee starting in the second year. $29 per year authorized user fee. Grace Period: 21 Days. Quirks: $89 upfront processing fee to gain access to your credit line, no balance transfers, shorter-than-average 21-day grace period. The Best Credit Card For Me After analyzing these, I chose the Credit One Bank Cash Back Rewards Visa. As I’m in the process of rebuilding my personal credit, this is the one I have in my wallet. What makes it attractive is the opportunity for credit line increases and rewards, as the card offers one percent cash back automatically on all purchases, applied as a statement credit every month. The other credit cards in the lineup didn’t offer any kind of rewards, and several of them seemed to lock people into a $300 credit line, with no real opportunity to increase — even if their income or creditworthiness goes up. People in online forums have reported $2,000-plus credit lines on this card after a year or two of good practices. Making your payments on time, always making more than your minimum payments, and keeping your overall balance low are easy ways to get higher credit limits (and a higher credit score) over time. However, this card doesn’t offer any grace period on purchases, unlike mainstream consumer credit cards, which generally offer 21 days. Therefore, you will be automatically charged interest for all purchases throughout the month. The most costly option is the First Premier Bank Mastercard. It has a high-interest rate compared with the other cards, and fees to access your credit line. Top Tips for Unsecured Credit Cards You generally shouldn’t have to pay anything upfront to access the credit line on an unsecured credit card, and yet, First Premier and several other banks require you to do just that. One piece of advice: Always read the cardholder agreement whether you are getting your first debit card or are applying for a credit card. It’s the slip of paper that comes in the envelope or package with all credit cards sent out in the U.S. It’s easily identifiable. The name of the bank or the company appears on the top. In very bold type, you should see the card’s interest rate. The interest rate will likely be the largest if you carry a balance, which is why it is displayed most prominently. There will also be some fine print. You should read it all. This document is required by law to have every fee that the company will charge you. If you don’t understand a term, ask someone you trust, or research online. I’ve read a lot of reviews of people having problems with their secured, unsecured or regular credit cards, citing unexpected fees and payment processing delays. They could have known about this by simply reading the cardholder agreement. The 10 minutes it might take will save hours of headaches and a potentially damaged credit history. Remember nothing comes free and if something seems too good to be true, it probably is. My Final Thoughts and Findings 2017 Research from the Consumer Financial Protection Bureau finds that average utilization on credit cards issued by these subprime specialists was nearly 15 percent higher than that on mass-market cards from lenders like CitiBank or Discover. These companies are making a lot of money off of interest charges. Overall, these subprime credit cards fill the gap in the market between a secured credit card and more mainstream offerings for consumers with fair to good credit from companies like Capital One and Discover. If you’re looking to get a head start on rebuilding your credit like I am, I believe this is one of the best approaches without waiting years and years for negative items to drop off your credit history. As I previously mentioned, I reached out to all the companies highlighted in this article offering an opportunity to comment, but I did not receive a response.