Bad credit? These cards can help

7:30 AM cards, Credit, These No Comments

Business Week | By Peter Andrew, IndexCreditCards.com

If your credit scores are circling the drain, one of these credit cards could help you get back on track.

You might be surprised by how many Americans get by with few or no mainstream financial services.

The Federal Deposit Insurance Corporation reported in 2012 that 28.3 percent of U.S. households were either "unbanked" (didn't have so much as a checking or savings account), or "underbanked" (had at least one such account, but had still, in the previous 12 months, used alternative financial services, such as check-cashing companies or payday lenders).

It wasn't so long ago that not having a credit card was likely to seriously cramp your style. Without one, you couldn't make online transactions, book flights, rent cars, reserve hotel rooms and so on. But things have changed. Prepaid and debit cards now make it much easier to do most of those things.

So is there any point in having credit cards anymore? You bet!

This website is always talking about the unique consumer benefits and protections credit cards bring, but they also have an additional role for those whose credit reports have been damaged. Neither debit cards nor prepaid ones routinely report your financial activity to credit bureaus, which means they have zero impact on your credit score. Credit cards, however, do make such reports, and that means they can be one of the fastest and surest ways of boosting that score.

The problem is, if your score is low, you're likely to struggle to get approved for mainstream plastic. Luckily, there are two types of credit card designed for people in precisely that position:

Secured credit cards: These require you to lodge an upfront deposit, and you generally spend and replenish that. So it's hard to get further in debt, good behavior should boost your credit score, and you stand to get an ordinary, unsecured credit card once you've proved your finances are back on track.Unsecured credit cards for bad credit: These don't require an upfront deposit, but the issuers tend to cover the additional risk you pose with higher credit card rates, and, usually, annual fees.

You need to take care in committing to any financial product, and these are no exception. In fact, given that you're currently in a vulnerable situation, you should take even more care when applying for one of these cards. In particular:

Reporting to credit bureaus cuts both ways. It's a great opportunity to prove you have the resources and skills to manage your money well, and can quickly increase your score. But it can just as quickly make things worse if you mess up. Be certain you're going to have the cash and self discipline to act perfectly. A good way is to draw up a household budget in advance. Be prepared for rejection. If your financial history is messy enough, you may not qualify even for one of these products. If your application's declined, you could consider applying for a store card, some of which have low approval thresholds. But be aware of the dangers of these. Wherever people are desperate, there are sharks waiting to prey on them. Some card issuers offering these products are notoriously predatory, and charge outrageous fees (including especially dangerous "application fees") and usurious rates. Be sure you read and understand the terms and conditions in full before you commit to anything.
One of the best issuers of secured credit cards is First Progress, and it's worth exploring further three of its products in particular:

First Progress Platinum Select MasterCard® Secured Credit CardFirst Progress Platinum Elite MasterCard® Secured Credit CardFirst Progress Platinum Prestige Secured MasterCard®
Read the terms and conditions of all three for yourself to find the one that suits you best, but let's take a closer look at the main features of the last one, just as an example:

You have to maintain a minimum security deposit of $300, although you can decide to deposit up to $2,000.You won't get interest on that sum, but you will be charged interest at 11.99 percent APR variable on purchases (more on other transactions), which is very reasonable by comparison with average credit card rates. However, you don't get an interest-free grace period, and should begin to pay from the day a transaction is posted on your account.There's an annual fee of $44.These cards are not yet available to residents of Arkansas, Iowa, New York or Wisconsin. First Progress reports on accounts to all three credit bureaus each month.

With unsecured credit cards, you don't have to pay a security deposit, but the cards can be costly. Again, the advantage is that your accounts should be reported each month to credit bureaus, so giving you the chance to rebuild your score quickly.

Barclaycard Rewards MasterCard - average credit: This isn't for those with really bad credit, but it's a great deal for anyone who's just below the threshold for mainstream cards. There's no annual fee, but the rate is a high 24.99 percent APR. This is, of course, irrelevant, providing you completely pay your balance each month. You can get double rewards points on gas and groceries purchases and utilities payments.Credit One Bank Credit Card with Gas Rewards - poor credit: You're more likely to get approved for this than the Barclaycard product, but it comes with a $75 annual fee in the first year, and $99 annual fees each year thereafter. The rate charged is a steep 23.90 percent APR, but you can get basic rewards on gas purchases. One advantage is a pre-qualification process that lets you apply without affecting your credit score.

You wouldn't go anywhere near any of this plastic -- except, maybe, the Barclaycard product -- in normal circumstances, but these are difficult times. The sooner you can get your score back up, the sooner you can apply for mainstream cards and lose all the problems bad credit brings.

These products are good for that. However, if you do apply for one, just make sure you really are going to be able to make payments on time, and, if at all possible, pay down your balance in full each month. If you can't be certain of that, it may be best to wait until you are.

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Are credit cards more expensive now?

10:00 AM cards, Credit, expensive No Comments

| By Janna Herron, Bankrate.com

Three years ago a major credit card reform law was implemented. Has it affected the way you use your cards?

Federal legislation tightening the regulation of credit cards has produced more responsible and satisfied consumers and fewer young people in credit card debt.

The trade-off? More expensive credit cards.

Three years after the landmark Credit Card Accountability, Responsibility and Disclosure Act, or CARD Act, was fully implemented, the credit card world has settled into its new rule-bound reality with mixed results.

Cardholders are making larger monthly payments, and fewer have fallen behind on credit card payments. At the same time, interest rates on credit cards have risen a full percentage point, and annual fees have increased more than 41 percent. Also, credit limits have been slashed.

"This was a well-intended law, and it came at a time when the country was having a hard time economically," says Brian Riley, senior research director in retail and banking at CEB TowerGroup. "There has been more conservative lending, but not everything is bad. It has woken people up about their debt."

One of the most applauded provisions in the CARD Act is the payoff math that must be included on the credit card statement. It shows how long it will take for the minimum payment to eliminate a card's balance along with how much interest will be charged during that time. It compares that with another payment that will get rid of the balance in three years along with how much money a consumer will save on interest.

"It's a real eye-opener," says John Ulzheimer, president of consumer education at SmartCredit.com. "I bet some people think that it's a mathematical error because they can't believe the numbers."

It appears to be working. Survey results released in February this year by Consumer Action, a consumer advocacy group in San Francisco, showed that 45 percent of consumers polled said they paid more each month because of that minimum-payment warning.

And the rate at which cardholders pay off their balances hit an all-time high of 25 percent in May, according to a Fitch Ratings index that measures credit card performance.

"Consumers told us that (the disclosure) scared them," says Ruth Susswein, deputy director of national priorities at Consumer Action, a consumer advocacy group. "Unless you're confronted with this information quite directly, it's easy to not realize how costly these cards can be."

Cardholders also are making more payments on time since the passage of the CARD Act. The percentage of accounts that were at least 30 days past due fell to an almost 23-year low in the first quarter of 2013, according to the American Bankers Association.

According the credit reporting bureau TransUnion, the percentage of accounts more than 90 days past due fell to 0.69 percent in the first quarter, compared with 1.11 percent in the first quarter of 2010. Part of the decline could be attributed to how the act requires issuers to bill their customers. Issuers now must deliver credit card bills to cardholders at least 21 days before the payment is due. The due date must fall on the same day every month, and the cutoff time can't be earlier than 5 p.m. If the due date falls on a weekend or holiday, cardholders have until the next business day to make their payment.

"It adds consistency to the process and makes it reasonable for people to pay their bills in a timely manner," Susswein says.

All this has created better relationships between cardholders and their issuers. The percentage of credit card complaints that Consumer Action's hotline received fell to 4 percent in 2010, the year the CARD Act was implemented, from 12 percent in 2009. And J.D. Power and Associates' credit card satisfaction index reached its highest level this year after rising for four straight years, starting in 2010.

The CARD Act also made it harder for people younger than 21 to get credit cards as a way to curb debt among young adults. That, too, has succeeded. A quarter of students this year reported having a credit card in their name, down from more than third in 2009, according to Student Monitor, a college market research firm. And 28 percent of students carried a balance this year, down from 40 percent in 2009.

Still, the decline of students with credit cards has troubling consequences, Ulzheimer says. Banks are wooing young people with prepaid debit cards, a payment type that isn't regulated as closely. And young people face a harder time building good credit without access to credit cards, one of the easier types of credit to qualify for.

"It's good to have no debt, but it doesn't help you to not have a track record of responsibly managed credit accounts," Ulzheimer says. "It's like having a resume with nothing on it."

That's one of a few negative consequences that came out of the CARD Act, says Ulzheimer. Adding to that, credit card terms are not nearly as attractive as they were before federal regulations kicked in.

The act capped penalty fees, limited how penalty interest rates can be applied, and eliminated certain fees and practices altogether. The rules have hampered how issuers can hedge against lending to riskier borrowers and have slashed profits they make from these consumers.

The average annual percentage rate, or APR, for variable credit cards -- the most popular type of credit card -- has risen by a percentage point to 15.31 percent from 14.3 percent before the CARD Act was enacted, according to Bankrate's weekly interest rate data in August.

Annual fees also have risen. They averaged $113 last year, up from $80 in 2010, says Roy Persson, director of competitive tracking services at Ipsos Loyalty, a research services company headquartered in Paris.

"That's huge," Persson says. "We're seeing annual fees changing rapidly."

At the same time, credit limits on new credit cards have fallen 30 percent since 2008, and limits on existing accounts have dropped 17 percent, says Riley.

"The CARD Act doesn't allow creditors to push the risk toward where the risk is coming from," Riley says. "So everyone has to pay for it."

While the act was comprehensive, it did miss some key areas. For example, consumers didn't have to get 45 days' advance notice if their credit limits were cut, says Susswein. The act requires issuers to give consumers a heads-up if their interest rate rises, certain fees are increased or other significant changes are made to card terms. However, that doesn't include credit limits.

"That can be a rude shock to people who thought they had a higher limit when in fact they didn't," Susswein says.

Ulzheimer also pointed out that the Consumer Financial Protection Bureau had to step in to clear up one provision that made it harder for stay-at-home spouses to qualify for credit cards. The act mandated that issuers must consider an individual's income -- not household income -- to qualify an applicant. The rule was designed to make it harder for college students to get credit cards based on their parents' income. But the rule also kept nonworking spouses from qualifying for credit cards.

After a massive online petition started by a Virginia stay-at-home mom, the CFPB said in April credit card issuers can consider income and assets that a nonworking individual shares with a spouse or partner when granting a credit card or credit limit increase.

The act's consumer-friendly protections also left out small-business credit cards, which typically are personally guaranteed by the cardholder. In the year after the act was put into law, banks introduced more small-business cards or enhanced existing ones to woo everyday consumers.

"If they really wanted to spread the blanket across the entire bed, the act really should have included small-business cards," Ulzheimer says.

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