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Released: November 29, 2011
Secured Credit Card Survey reveals deals and ‘steals’
Interest rates on surveyed cards range from 0% to 23.99%
FOR IMMEDIATE RELEASE—Consumer Action releases its Secured Credit Card Survey of credit cards designed for those with damaged credit or no credit record, and that can offer a "road map" to regain the safety net that wisely used credit can provide.
Consumer Action's 2011 Secured Credit Card Survey reveals that rates and fees charged to secured cardholders vary dramatically from card to card. Consumer Action's surveyors found a variety of interest rates from 0% to 23.99%. While many of the surveyed secured cards had reasonable terms, our research found that some cards have hidden fees lurking in the fine print.
Secured cards can offer consumers whose credit was harmed post 2008 by lost jobs and foreclosures a way to reestablish a healthy credit history. For people who have little or no access to credit because of a poor payment history, a low-cost secured card can be a valuable tool to rebuild a credit score.
Four surveyed card issuers offered rates below 10% on purchases (Navy Federal, Applied Bank, HSBC's Orchard Bank and USAA).
Applied Bank charges no interest on purchases on its secured Platinum Visa, but makes up for the lack of interest with monthly maintenance fees that total $119 per year ($9.95 per month). Cash advances on this card are subject to a 9.99% APR.
Secured credit cards are backed by money—as little as $200—deposited by cardholders in an account held by the issuer. Credit limits typically equal the amount on deposit. Activity on the cards is reported to one or more of the three major national credit bureaus.
Even with money on deposit, surveyors found that some people with blemished credit will not qualify for a secured card. Some surveyed secured cards are not available to the general public because they are offered by credit unions or banks that serve specific clientele, such as the military.
Following Applied Bank's 0% offer, the lowest interest rate on surveyed cards was HSBC's Orchard Bank with 7.90% and a $35 annual fee (waived the first year). The highest interest rate on surveyed cards was Fifth Third Bank's Secured MasterCard at 23.99%.
The average interest rate on surveyed secured cards was 16.60%. By comparison, Consumer Action's February 2011 Credit Card Survey found an average rate for unsecured cards of 15.05%.
- Partially secured: Depending on the credit record of applicants, Capital One offers a $200 line of credit in return for a partial deposit of $49 or $99. Other approved applicants must deposit $200 to receive a $200 line of credit.
- Deposit plus: Some card issuers require a larger deposit than the credit line (Fifth Third Bank, $150 more [*outdated information, see footnote]); Golden1 Credit Union, 1.5 times the deposit).
- Interest earned: Several surveyed issuers paid interest of up to 1% on security deposits.
- Approval not automatic: Some issuers will not approve applicants with a bankruptcy or recent delinquency.
- Credit reporting: All issuers regularly report cardholder payment history to one or more of the three major national credit bureaus, Equifax, Experian or TransUnion.
- Security deposits: We found that security deposits ranged from a minimum of $200** to a maximum of $30,000, depending on the issuer.
Consumer Action recommends that consumers do not carry a balance on a secured card. Paying all charges in full each month will avoid interest and keep the limited line of credit available for new purchases.
"Cardholders who use a secured card as a tool to rebuild a stable credit record can find themselves in a position to qualify for mainstream credit cards within 12 to 18 months," said Ruth Susswein, Consumer Action's deputy director of national priorities. "These cards are not meant for long-term relationships. Get in, pay on time, build or rebuild good credit and get out again when you qualify for unsecured deals."
Cards to avoid
Researchers found (but dropped from the survey) two First Premier partially secured cards because their terms were anti-consumer. Two had a whopping 49.9% APR, a $75 annual fee ($45 in year two) and a $6.50 per month maintenance fee (waived the first year). But for us the real clincher was that all cards reviewed from First Premier charge credit line increase fees of $25 for every $100 increase, after the 13th month.
"We believe that secured cards can help disciplined consumers rebuild their credit, but there are some cards out there that are best avoided," said Linda Sherry, Consumer Action's director of national priorities. "Consumers who are working to rebuild a damaged record do not need to dive back into debt, particularly when secured cards are available with reasonable rates that pay cardholders interest on security deposits."
The Consumer Action Secured Credit Card Survey is published in the Fall 2011 issue of Consumer Action News, the organization's quarterly newsletter. The survey was conducted between June and November 2011 by Alegra Howard, Ruth Susswein and Linda Sherry of Consumer Action.
Click here to read the Consumer Action Secured Credit Card Survey. For a PDF with all data collected about each card, click here.
Footnotes: *Update: Fifth Third has notified Consumer Action that it no longer requires an extra deposit and that its secured card credit line now equals the amount on deposit.
**Capital One allows qualified customers to make minimum deposits of $49 or $99 to secure a $200 line of credit.
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Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A nonprofit 501(c)3 organization, Consumer Action focuses on consumer education that empowers low to moderate income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.
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