You’ve seen the ads: Bad credit? No problem! They promise you a credit card regardless of your credit history or job status. A secured credit card can be a great way to rebuild your credit after something like bankruptcy or divorce has wreaked havoc with your credit rating. However, there are some scams out there promising a credit card for people with bad credit.
What is a secured credit card?
The difference between a secured and an unsecured credit card lies in where the money comes from when you make purchases. With an unsecured credit card, the standard card issued by most lenders, you are borrowing money to pay for your purchase and then paying it back with interest via credit card bills. A secured card requires that you make a deposit into an account before making any purchases. What you buy is paid for by the money you deposit in the account. Therefore, your credit limit is determined by how much cash you put up front.
Opening an account for a secured credit card could require hundreds, or even thousands of dollars. This up-front cost makes it difficult to understand the appeal of this credit card for people with bad credit. In addition, you may pay application or set-up fees and be charged a nominal fee when you make additional future deposits. These fees show up on your credit card bills.
How to spot a scam
The ads that promise you a credit card regardless of your credit history may be legitimate promotions for a secured credit card. Unfortunately, some people try to lure you into calling a number that isnt toll-free, a 900 number that you will be billed for later. They may also lead you to believe that you can get the card as soon as you call the listed number. There is no mention of set-up fees, initial deposit amounts, eligibility requirements, or credit card bills that are weighted down with annual fees and interest.
Remember that someone offering you easy credit with no requirements is probably not telling you the whole truth. Any lender will check your credit report before offering you a line of credit, especially when providing a credit card for people with bad credit. Also beware of calling 900 numbers that could charge you up to $50 for a few minutes.
Services may also offer to clean up your credit history for a price. These services are doing what you can do yourself for free. Beware of anyone trying to make money off of your already high debt. With time, good payment history, and the aid of a secured credit card, you can clean up your credit and start a new financial trend on your own.
What to look for in a lender
When applying for a secured or unsecured credit card, be sure to check the lender out. They should report to a valid credit bureau. Information about the major credit bureaus can be obtained from the Federal Trade Commission.