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I have noticed an increase in the number of secured credit card offers. Unfortunately, many companies are trying to take advantage of people who are attempting to rebuild their credit history. The number of scams is increasing at an alarming rate, and I have received multiple offers in my email account and mailbox for these types of cards.
The Rise of Secured Credit Cards
Secured credit cards offer consumers the opportunity to build or rebuild their credit by issuing cards with an attached form of collateral. Most companies force the customers to open a savings account that serves as collateral. The line of credit is directly tied to the amount of money in the savings account.
My first encounter with a secured card was in college while I was trying to establish a credit history. I decided that the fees were too high, so I did not get the card. I consider myself lucky because secured credit cards can be a nightmare.
The Problems
Secured credit cards have extremely high application fees. Most companies charge $100 or more to fill out and process an application. Additionally, some companies charge processing fees and security deposits. The total cost of applying and getting a secured card can reach $200 or more, and this does not include the savings account that must be set up separately. The savings account tied to the cards cannot be used to make payments. Essentially, the money must remain untouched. Banks can require a minimum deposit of $300 to $3,000 into the account.
I have never seen a secured credit card without an annual fee, and most of them charge $50 to $100. The interest rates are always higher than standard credit cards. Although they are marketed to help consumers build their credit, they simply take advantage of customers with interest rates of 24% to 30%.
The Scams
There has been a rise in the number of scams associated with secured credit cards. First, some companies are requiring applicants to call a 900 number, and people end up with large fees on their phone bills without receiving an application. Some scams are simply collecting personal information for identity theft.
The current economic problems and high unemployment rates in the country are leading to more secured credit card offers. I am seeing more of these offers appear online and in the mail. I have avoided them because they take advantage of customers, and many are simply scams.
More from this contributor:
First Person: How I Handled Credit Card Inactivity Problems
First Person: Dealing With Evolving Fees on My Debit Card
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