Got a Spotty Credit Record?
Sweeter secured cards
As the battle for the hearts and balances of credit card users heats up, issuers are aggressively courting people with no credit history, or a bad one. In the past couple of years, major banks and companies such as Chase Manhattan, Citibank, Montgomery Ward, Signet Bank and Western Union have all launched secured cards--Visa cards and MasterCards backed by a cash deposit. And as happens with any sort of increased competition, consumers are pocketing windfalls.
Interest rates on secured cards, which used to be 21 percent and higher, are falling; some are now as low as their unsecured counterparts. Federal Savings Bank of Rogers, Ark., (800) 290-9060, rolled out a secured credit card in November with an interest rate of 8 percent and a $55 annual fee. (Arkansas law forbids lenders from charging more than 5 percent over the Federal Reserve discount rate.) Interest is charged from the day the purchase is posted, however. Other fees and restrictions are becoming more tolerable. Application or processing fees are just about extinct. The minimum deposit, which used to be $500, now runs $200 to $300, and some banks are setting credit limits up to 150 percent of the savings deposit. A ceiling of $300 or $450 is low by conventional credit card standards, but many banks still impose a limit of 90 percent or less. And cardholders can add to their cash on deposit at any time to push the limit higher.
Welcome, bankrupts. Even insolvency doesn't stand in the way. Signet Bank, (800) 333-7116, will approve an applicant with a bankruptcy notation on a credit report, having found that bankruptcy survivors are eager to restore their credit. "Unless we believe that your account is fraudulent, you get the card," says Nigel Morris, executive vice president. Some issuers allow cardholders to "graduate" to unrestricted credit. Key Federal Savings Bank of Havre de Grace, Md., (800) 228-2230, lets secured cardholders switch to an unsecured credit card (with an interest rate of 16.9 percent and a $25 annual fee) after 24 months of regular payment.
Some people may have to tap an out-of-state bank for a secured card. MasterCard, (800) 710-6000, can provide a free list of banks that offer secured MasterCards. Bankcard Holders of America sells a $4 list of 19 secured card programs; RAM Research's $10 special report on 100 secured credit cards includes tips on how to establish or repair credit. Both addresses appear on this page in the accompanying story.
This story appears in the January 24, 1994 print edition of U.S. News & World Report.
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