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Subprime Credit Cards - Some Notes & Comparisons

The subprime credit crunch has severely impacted the availability of credit cards for people with bad credit. This niche experienced a surge in growth in the early to middle part of this decade with a proliferation spanning standard Visa and MasterCard offerings to merchant and catalog cards as well as prepaid cards. Many were advertised as ways to repair or rebuild credit. The idea was that obtaining a card with a relatively low credit limit and making on time payments which were reported to the credit bureaus would help restore a consumers history. Although this was valid in theory, the reality is that many of these cards carried such high interest rates and fees that consumers risked failing to be able to make on time payments and falling deeper into problems, particularly with debt.

For one thing, Prepaid cards are not valid credit builders since they are technically not credit cards. Neither are debit cards, which for those simply interested in having the convenience of being able to make certain payments at places where Visa and MasterCards are taken, are the better option. Credit cards for bad credit are a risk for the issuing provider, thus their relatively high interest rates are necessary. However, the most prudent option for people in the the subprime market has always been secured credit cards.

It is useful to compare the interest rates and fees of examples of some secured cards from the major issuers with the unsecured cards that have appeared in the subprime market:

The Bank of America secured Visa offers a credit line anywhere from $300 to $10,000. The variable APR is prime plus 10.99%. Currently, this adds up to a variable APR of about 15.99%*. There is an annual fee of $29

A similar secured card from CitiBank offers a variable 15.24% APR and an annual fee of $29 as well. One significant difference is the broader credit limit range available. This offer allows you to deposit anywhere from $200 to $25,000 into a CD as security.

The Wells Fargo Secured Credit Card has a relatively high variable interest rate at 18.49%*. It however comes with an introductory APR of 5.90%* for the first 6 billing cycles and a lower annual fee of $18.

Comparing these three with Unsecured subprime alternatives:

The Tribute Credit Card come in two types with credit limits of only $70 and $300 respectively. The variable APRs on these are 14.99%* and 19.59%* respectively. However, there are high fees for both. The $70 limit card has an opening fee of $20 and an "account maintenance" fee of $288 yearly. The $300 card has an annual fee of $150 and an account maintenance fee of $72 annually.

The CashYes MasterCard charges a one-time "Account Set Up Fee" of $125. There is an additional one-time "Program Participation Fee" of $76.00. This is on top of an annual fee of $96.

These huge fees and high APRs are rationalized by these companies for offering unsecured credit. But it's clear to see that unsecured cards from the major issuers offer a much safer and sensible option and are really the way to go. Particularly if one is indeed looking for a credit card and not a quick unsecured loan

* Every effort has been made to provide up to date information on APR rates, however we cannot ensure that rates we have stated are absolutely current. Please see the issuing company's own site terms for the most current rates.

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