Up-Front Credit Card Fees? Here’s a Better Option

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I review dozens of credit card offers each week to find the best deals. My goal is to help you use credit cards to build and protect your money and credit. Check out more on our credit card page.

According to last week’s New York Times, the new Consumer Financial Protection Bureau recently backed off from a fight to prevent credit card companies from charging fees before you open an account with them. These so-called “application fees” sidestep the Credit Card Act of 2009, which limited the fees banks could charge to 25 percent of your credit limit in the first year.

First Premier Bank went to court and successfully defended its right to charge larger up-front fees, arguing it would “suffer irreparable harm” if it had to stop collecting its $95 upfront fee. But its card, aimed at people with poor credit, makes its customers suffer too. They get hit with…

  • a $75 annual fee
  • a monthly service fee that adds up to another $75 a year
  • a 36 percent interest rate

There are much better cards for people with bad credit. They’re called secured cards.

How secured cards work

These cards require you to submit a security deposit, which guarantees you a line of credit of like amount. For example, if you want a $500 line of credit, you’ll deposit $500 with the issuer that essentially insures your account. Since the issuer is taking little risk, they’re more likely to approve applications for those with bad or no credit.

Once you’ve got the card, you’re issued statements, pay bills, and build credit like any other cardholder. When your account is closed, your security deposit is refunded – sometimes with interest. While not everyone will qualify for every secured card, there are still plenty of great cards from mainstream banks that accept nearly everyone.

Check out these secured cards, all from well-known banks…

  • Orchard Bank Classic Card. A subsidiary of HSBC Bank, Orchard claims all applicants who provide a security deposit will get approved. If you can prove your identity, it doesn’t matter what your credit score is, or if you’ve declared bankruptcy. There’s a $200 minimum security deposit, no annual fee the first year, and a $35 annual fee thereafter.
  • Wells Fargo Secured Visa. To be accepted, you must have been out of bankruptcy for one year and have no unsettled liens. Your credit limit is set by the security deposit, which can range from $300 to $10,000. There’s a $25 annual fee.
  • U.S. Bank Secured Visa. This bank actually places your security deposit in an interest-earning savings account. There’s a $35 annual fee.

Even though the government regulators backed down and allowed the fee-laden cards, don’t sign up for one. Even if you have little or no credit, you can still get a secured card from a mainstream bank. For more options, check out 8 Tips to Get Credit When You Don’t Have Any.

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