NEW YORK (2/17/15)--You've heard the pitch: "If you've been turned down for credit, we can help!" If you have blemished credit or lack a borrowing history, it might be tempting to fall for an unsolicited credit card offer, but be careful. These cards likely will only worsen your financial situation (The New York Times Feb. 5).
Often called fee-harvester cards, these cards target subprime borrowers--people already economically vulnerable with low credit scores and a tarnished credit history or none. Fees often are misrepresented, making some charges illegal. An example, according to Consumer Reports, would be an initial credit limit of $300 that's immediately reduced by a $50 annual fee and a $200 account processing fee, leaving available credit of only $50.
These fees are on top of others--such as a $15 monthly account-maintenance fee, a $25 charge to increase credit limit, and a $5 fee for online payments--not to mention a replacement fee if the card is lost or stolen, as well as over-the-limit fees. The cards also are notorious for high interest rates.
The Consumer Financial Protection Bureau recently ordered one subprime company to refund $2.7 million to about 98,000 customers who'd been charged illegal fees.
Stay away from fee-harvester cards and build your credit while doing so:
For related information, read "20% Rely on Credit Cards to Maintain Lifestyle" in the Home & Family Finance Resource Center.