Credit Card Options
For Bad Credit Borrowers

presented by Attorney Mory Brenner


        Hearing "bankruptcy" and "credit cards" used in the same sentence would not surprise anyone. High credit card debt bears responsibility for most Chapter 7 bankruptcy fillings. Yet the frequency of the following word combination always startles me: "I can not consider bankruptcy because I need a credit card."

        Such comments come not from people addicted to credit card use (people addicted to credit card use have usually abandoned this philosophy before they see a lawyer). These remarks come from those who recognize the importance of having a credit card for the many conveniences they offer in our society.

        Ordering merchandise online and renting cars account for just some of the activities that require a credit card. While some individuals over blow the issue into a life or death situation, maintaining a credit card merits serious consideration. Bankruptcy renders those with bad credit as outcasts in the everyday world of credit cards.

        Luckily options exist beyond typical bankcards, which can provide people with bad credit all of the benefits of carrying a standard credit card enjoyed by those with excellent credit.


Unsecured Credit Card

         Most credit cards fall into this category. Yet, as anyone with bad credit has learned, applicants with bad credit get shut out of the average credit card. This frustration can be compounded by rejections by companies that send letters saying a candidate has been pre-approved: Read the fine print on those pre-approval offers, many times the “pre-approved” status comes subject to a credit review.

         With a bit of research good and honest unsecured credit cards for those with bad credit do exist. The only downside to the reputable bad credit unsecured credit cards come in the form of lower credit limits, higher interest rates and the fact that those with very bad credit may still end up rejected.

         Debtors must watch out for less reputable cards trying to take advantage of their situation. I hate to say it, but the majority of cards offering to help people with bad credit fall into this category.

         The most common unsecured card for people to stay away from works like this: An advertisement guarantees you will be accepted for an unsecured credit card. Sure enough you will get an unsecured credit card with a credit limit of $250.00. Your first charge will be the program fee of $98.00 and account set up fee of $70.00. Add to this an annual card fee of $60.00 and you really get a credit line of $20.00. Of course, if you would like an additional card the $20.00 fee will take care of that too.

         As you can see you are paying $250.00 for your $250.00 credit limit. Read the disclosures carefully, with eyes wide open these cards can be identified and avoided. Reputable unsecured credit cards should have annual fees of $80.00 or less and few or no sign up fees. It’s ok to start with a small credit limit on your first unsecured credit card after a bad debt situation. Be responsible with the new card for 6 months to a year and you may ask for a credit increase. During that time take an aggressive approach to increasing your credit score by doing even more that just acting prudently with your new card. Keep your eyes wide open for credit cards that carry a "monthly participation fee". Even a monthly credit card participation fee of only $8 that looks innocent adds up to $96 dollars per year. The credit card companies make up many names and break the fees up into several smaller ones so it looks like a fair deal, but add all of them up. Look for application fees, maintainence fees, participation fees, program fees, set-up fees, annual fees, monthly fees and the list goes on. Compare the total fees for the card to the credit limit guaranteed. These high fee credit cards should be avoided!

         Another unsecured credit card rip-off goes like this: You get an unsecured credit card, maybe even with a high credit line, but it can only be used to buy merchandise from a particular catalog. The catalog prices get over inflated and the interest rates are very high. Only look at cards which offer national acceptance such as true Visa or MasterCards.

Secured Credit Card

         Two elements come together to make a secured credit card. First, a savings account must be established at the bank that intends to issue the credit card. Withdrawing any of the savings balance results in a reduction or elimination of the credit line. Where a balance in the credit card remains outstanding, withdrawal from the savings account may not be allowed at all. Deposits required may range from $50.00 - $15,000.00.

         Determining credit limits depend on one’s credit and bank policy; minimums start at 80% of deposits and maximums at 300% or 3 times the deposit, although most secure credit cards these days offer 100%, so your credit line on your secured credit card is exactly the same as your savings deposit dollar for dollar. Some banks review all applications before acceptance while others guarantee a card, under any and all conditions so long as the security deposit remains at the bank. Cards offered carry either a Visa or MasterCard affiliation; some cards offer your choice. Security deposit accounts earn a small amount of interest.

         An important characteristic you may have to ask about concerns the card's credit reporting. The goal of simply having a credit card can be met by any of these secured cards, but in order to rebuild credit the new card must report the activity to the credit bureaus. Most cards report without any indication the cardholder maintains an associated security account. Anyone reading the credit report would never be able to tell the secured card from an unsecured card. The problem comes from those banks that do not report their secured cards to credit bureaus at all. Anyone needing a rebuilding of credit must investigate which cards report credit card activity, and avoid cards which do not report.

         After some time, usually several years, many of these companies will either increase the credit line of the secured card, or allow the card holder to convert to an unsecured card. Don’t expect this to happen automatically. If you have been perfect with your credit card for over a year and want a change call the issuer of the credit card and ask.

         Debtors facing bankruptcy often suggest they pay off one or two cards in order to leave them out of the bankruptcy and maintain the existing cards. Unless the balances on the cards are very small I recommend avoiding this strategy. A better idea, when possible, will be to use the money allocated to pay off the card to obtain a secured credit card. In the future the deposit for a secured card goes back to the depositor, payments made to a credit card prior to bankruptcy are gone forever. For more on secured credit cards read the secured credit card FAQs.

Debit Card

         A debit card requires a savings account or a checking account be established, much like a secured credit card. The bank then issues a “debit card”. Most debit cards bear a Visa or MasterCard logo, and look and feel just like a credit card. In stores or online it can be used just like a credit card. For convenience of use, there may be no difference at all.

         Behind the scenes, however, a debit card operates far differently than a credit card. You pay your credit card bill the day you want to. If you don’t want to pay it in full you pay a minimum monthly payment and pay the rest later. With a debit card charges put on the debit card instantly withdraw from your account. Some banks call these “check cards” because they act as if you write an instant check.

          A credit card may have a credit line without regard to your bank account, as with an unsecured card. Even with a secured card a credit line can exceed the savings balance. A debit card is always limited to the collected balance in your account.

          Unless unverified, a debit card use without the proper funds in place should be rejected instead of creating an overdraft situation. In some cases it might create an overdraft problem. More commonly overdraft problems occur when a valid debit draft purchase results in a lower account balance, then checks go out that bounce because the debit card items used the money in the account.

          Consumer advocates caution that debit cards at most banks carry none of the fraud protection associated with credit cards. Typically if a credit card becomes lost or stolen the cardholder must only pay $50.00 of any illegal or fraudulent charges so long as proper reporting of the lost or stolen card is placed quickly. A debit card in the wrong hands may come with none of these protections.

          A criminal with a debit card linked with a one million dollar bank account could steal every penny. This problem remains a hot topic amongst those issuing credit cards and debit cards. In the future customers will likely see similar limits or potential losses from a stolen debit card. Some debit cards may have these features in place already.

         Cardholders thinking of a debit card should just make sure they understand how these problems might effect them as well as researching any particular debit card they may be applying for to understand what protections the particular debit card offers.

          Even when one has made a conscious decision not to have a credit card, rebuilding credit should still remain a goal. Debit cards never help rebuilding credit. If you elect to go with a debt card make an effort to rebuild credit other ways.

          Good traits about debt cards include their advantages over checks and that they can be obtained without credit approval. Making an informed decision to choose a debit card may be the right choice for some people just be careful.

          Credit cards need not be feared, but they must be respected. Never forget even if your own personal problems had nothing to do with credit cards, that misuse of credit cards can easily lead to financial ruin. Credit cards or debit cards have no rivals as keys to opening the door to many new technologies such as online shopping. Obtaining and wisely using a credit or debit card can help repair both one's credit and self esteem following a financial disaster.

For a directory of credit card issuers and multiple submission services working with bad credit applicants for credit cards visit:
Alternative Financing Sources - Credit Cards


For more information on borrowing money with bad credit visit:
Click here to begin your introduction to lending for borrowers with bad credit. Click here for information and guidance on obtaining a home loan despite having damaged credit, history of bankruptcy, or other unusual loan issues. Click here for information and guidance on obtaining a car loan despite having damaged credit, history of bankruptcy, or other unusual loan issues. Click here to begin your introduction to lending for borrowers with bad credit.

           


 

Other sites for those with debt or bad credit by Attorney Mory Brenner:

Bankruptcy Alternatives / Debtor's Options
FAQs examining the debt itself, personal issues and many resolution options including workouts, payment and bankruptcy. 
Debtor Links
Sites for debtors on bankruptcy, workouts, credit counseling, IRS, credit rebuilding, and more! US, UK and Canada. 
Alternative Mortgage Sources USA
Links to lenders and mortgage brokers throughout the United States offering home loans to individuals with credit problems, bankruptcies or foreclosures. Apply On-Line service available.  
Alternative Finance Sources USA -Car Loans
Links to lenders and finance companies throughout the United States offering refinancing, new or used car loans to borrowers with credit problems, bankruptcy or foreclosures on their credit report. Includes a nationwide used car search engine.
Alternative Finance Sources USA -Credit Cards
Links to lenders and credit card companies granting credit cards to those with credit problems, bankruptcy or foreclosures on their credit report. Debtors-Please use this page to help rebuild your credit, not incur more debt!



For information on retaining or consulting with Attorney Brenner
please visit the contact page.

Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7, Chapter 13 or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

This material may be considered advertising under the rules of the Supreme Judicial Court of Massachusetts. Web site design by Mory Brenner. This page, and all contents, are Copyright (C) 2007, all rights reserved, by

Financial Firebird Corporation, 150 North Street Suite 40, Pittsfield, Massachusetts 01201.

The most recent update of this page occurred on 6/15/07.