Beware fee-harvester cards; choose CU card instead

February 13, 2015

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:

  • Find an alternative to fee-harvester and high-rate cards. Credit union credit cards generally have lower rates and fees than cards from other financial institutions.
  • Consider a secured credit card to help build or rebuild credit. A secured credit card trades access to credit for your commitment to keep a certain amount of money in a savings account. Once you've made, say, 12 months or so of on-time credit card payments, you'll be eligible to apply for a conventional credit card.
  • Develop a strong credit history. Don't charge more than you can afford to pay off monthly, and always pay your bill on time. A strong credit history will pay off in the future when you want to buy a house or purchase other big-ticket items. It even can affect your ability to get a job or rent a place to live.
  • Contact your cardholder immediately if you run into trouble paying your bill. Ask for a session with a credit union financial counselor, or for referral to a counseling service your credit union staff can recommend.

For related information, read "20% Rely on Credit Cards to Maintain Lifestyle" in the Home & Family Finance Resource Center.

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