Subprime Credit Cards Are Back, Now With Extra Interest!

After a couple years of hiding in the shadows, credit cards targeted at consumers with less-than-stellar credit ratings are once again making a push to gain new customers.

According to SmartMoney.com, the number of credit card solicitations being sent out to the safest group of subprime borrowers — those with FICO scores between 620 and 660 — has risen up to 300% since June.

Lenders like Capital One and HSBC are jumping back on the subprime credit card bandwagon, saying they are just trying to help consumers out by extending credit to a larger group of borrowers.

It doesn’t hurt that subprime borrowers generally generate more fees and pay higher interest rates.

Experts say the banks are betting that many of the people in this higher end of the subprime category aren’t really the risks they appear to be on paper.

From SmartMoney:

Some borrowers, for example, might fall into this category because their credit lines were previously slashed or they fell behind on paying bills after a temporary job loss. For its part, an HSBC spokesman says the bank is “selectively increasing marketing activity” across its credit card business–including to subprime borrowers– as “credit conditions improve.”

But the lenders are also hedging their bets on this new group of subprime borrowers, who will have an average interest rate of around 20%, up from around 17.6% a year ago. Meanwhile the average credit lines remain about the same low level of $300 to $500.

But where it had previously taken a full year of on-time payments to get an increase on one’s credit limit, it should now only take about six months says SmartMoney.

The story says that if you’re just looking to improve your credit score by getting a credit card, it might be better to get a secured credit card, where the credit limit is equal to the amount of money the depositor hands over to the lender. These cards generally have lower interest rates and the activity on secured cards is reported to credit bureaus just like regular credit cards, meaning consumers can build credit with on-time payments and low balances.

Subprime Credit-Card Offers Pick Up [SmartMoney.com]

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  1. Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

    I’m betting more than a few of the applicants for these subprime cards are unable to get “regular” cards because of the shenanigans played on them by the very same companies that are now offering the subprime cars to them.

    Of course, most of them are responsible for their own credit woes.

  2. Red Cat Linux says:

    Way back when I was an itty, bitty, baby consumer I had a secured credit card. I gave them $200 and got a card I could use to buy books for college and similar expenses. I paid it off regularly, never carried a balance, never went over my limit.

    After a few years, they bumped the limit to 2X what my deposit was. Then 3x. My use of the card did not change. The limit bumped up to 4X my original deposit. The card had an annual fee, so they were making money from that plus the interest from my deposit, but still, the bank(Capital One) got fidgety. Need moar fees frum kollege stoodent.

    The annual fee went up. I called, and they comped it. I called every year and they comped it. I called and asked them to lower the credit limit since I only used the card for online purchases now. I had other cards with higher limits and no annual fees. They refused.

    I have always wondered why not. I mean it’s not like I ever got close to the limit. They also wouldn’t allow me to get a different type of card without the fee. Odd, since this card was how I raised my credit score and I had other better cards. I closed the account entirely. The account rep was huffy about it.

    tl;dr – secured cards are a good way to raise your credit score, if you are good about paying it off and working the bank for the fees, but the minute you no longer need it, take off the training wheels.

    • Cat_In_A_Hat says:

      Sounds like my first card. It was a Bank of America secured card with a limit of $500 that was tied to a savings account. The savings account had a month fee and the card carried an annual fee. This was my first year in college and I was about to go on a 5 week travel study program and though having a credit card, instead of just my debit card, was a good idea. I ended up running up the card to the max buying fancy European clothing items, and a train ticket to Paris. It was at this time I was happy the limit was only $500 or otherwise I may have went a wee bit crazy with the charging. This card taught me a lot about credit and managing money. I paid my bill on time and as soon as I have established enough on time payments I started receiving more credit card offers (and was able to drop the BofA card), the best being my Providian->WaMu->Chase Democratic Party VISA card (that gave cash back each month, those were the days) that started with a limit of about 1K and them shot up to 12K in only a few months. After using this card a few times and paying the balance on time, the ripple effect began and the card offers kept pouring in, all while I has just turned 19. I now have 3 credit cards because of this (VISA, MC, AMEX, all of which I don’t need), but luckily no cc debt. My parents and older siblings had trouble with cc companies in the past so I pretty much learned from their mistakes and made a point not to ruin my credit at a young age. I’ve pretty much managed my credit accounts best out of my immediate family members and have my mother piggybacking off of me to help her re-establish her credit. She’s actually started receiving offers again which is quite shocking giver her history but most of them are these type of cards that carry very strict rules and regulations and are more out to screw the consumer than help them like they claim to.
      / my 2 cents

    • TasteyCat says:

      Why would you ask for a lower credit limit? A higher limit is not (should not be) hurting you any.

  3. Bagels says:

    Some of these cards make the Kardashian Kard look like a bargain

  4. sirwired says:

    Secured credit cards work, but the fees truly suck. You get charged insane amounts of money for the privilege of letting somebody else hold on to your entire deposit. They should only be used if there is no other option.

    Gas cards are a good choice, as they’ll approve almost anybody for a small limit, and there are no bizarre fees for just having an account.

  5. FireJayPa says:

    The interest rate seems a bit high, is that par for the course when you’re FICO score is in that range?

    Not trying to be smart or snarky, this is a serious question

    • TasteyCat says:

      20% is a pretty reasonable rate, relative to some I have seen. I know a lot of people got bumped up to 29.99% during the year leading up to the idiotic CARD Act, through no fault of their own (the banks were terrified by the law and just jacked everybody up en masse). Meanwhile, there are cards that run as high 79.9%.

  6. CompyPaq says:

    Capital One keeps sending me offers for credit cards with an annual fee and a 19.99% apr. They send me these about once a week and I have no idea why. While I do have a limited credit history, I do have two other credit cards which I pay off every month. Of course my limit is low on both of them, but the interest rate is much lower.

    Oddly enough, I my savings account is with Capital One so they should know how much money I have and how often I spend it.

    • rawley69 says:

      I get these from Capital One also. But the thing is, the card I already have from them is way better than the new offers.

  7. Cosmo_Kramer says:

    If you’re looking to build credit, just pay it off every month and don’t worry about the interest rate. Treat it like cash.

    • Saltpork says:

      That’s what I did.
      When I started using credit cards I put my fuel and groceries on it instead of my debit card.
      I never ran it up on nonsense, just gas and food. Pay it off every month to this day & still only have 500 dollar limit. I don’t want more or need more & I have no annual fees.

      It also helps show me how much I’m spending on both for my budget.

      I do have a couple of other credit cards. One is strictly for online(and has fraud protection & a thousand dollar cap) and the other is for emergencies or big ticket items. Last thing I put on it was a vehicle repair bill.

      I don’t understand why people would put themselves in massive debt via credit card. Student loans & mortgages I get, but not credit cards.

  8. FrugalFreak says:

    AVOID! don’t let them control you!

  9. nbaptist says:

    A coupleof yers ago, my son had recieved a credit card offer from some off the wall company.

    The rate was something like 54%, I laughed and threw it in the trash!

    What is suprising is that the rate 20% is less than Chase has on my currently Chase Canceled card of 29.8%

  10. areaman says:

    This sounds like a truck containing good news collided with a truck containing bad news.

  11. gitmo234 says:

    I get TONS of these. A lot of them are just like the ones in the picture. Exact images. I get them because I just bought a house (Around 300k), and a new car, and then racked up one card to the max, which will now be paid off with my next payment. So a combination of high utilization (even though its only roughly 4 months) as well as lots of new debt dropped my normally 750 score to in the sub-prime area.

    I’ve never been late or missed a payment in my life. There isnt a single derogatory entry on my credit report.

    I take the envelopes out (if they’re pre-paid postage) and cover the intended recipients address and use it to mail my family letters, and use the rest to start kindling on the fireplace.

  12. madmallard says:

    what people seem to be ignoring is that the “Credit Card Accountability Responsibility and Disclosure Act of 2009″ has changed how these cards worked from beforehand.

    alot of the ‘fees’ previously assesed that this brief article mentions are invalid now. Also, by this law, you can set your own credit limit. One poster in this thread mentions a story from back yonder when they couldn’t do this.

    also, payments now pay off highest interest balance first by law.

    and the biggest relevant piece of information this artice lacks: If the subprime card has fees amounting to more than 25% of the credit limit, then the applicant must pay those fees up front before the credit card company can open an account for them.

  13. Bob Lu says:

    Secured card, sumprime card, there is no difference if you really just want to improve your credit record. Just look for the no/low annual fee one and pay in full every month.

    • MrEvil says:

      Capital One is surprisingly less fee-happy than others. $29/yr isn’t TERRIBLE. Way back in the past I had a card with a $78 annual fee (un-secured though) with a $300 limit. Don’t blame me, I was young and stupid back then.

  14. Press1forDialTone says:

    This pilot may the a love child of pilot “Sully” Sullenberger
    of “The Miracle on the Hudson”…

  15. Press1forDialTone says:

    Oops, posted to the wrong article… time for bed.

  16. WiglyWorm must cease and decist says:

    Huh… and here I thought that my credit score must have been improving.

  17. Thorzdad says:

    Please explain to me again why it’s entirely on the consumer’s back to behave responsibly, and businesses get a free-pass to inject this kind of dangerous crap into the economy.

  18. owtytrof says:

    I can admit to being the recipient of more than a few of these types of solicitations. My favorites are the ones that say on the envelope something like “You earned this!” or “You deserve this!”

    Just cracks me up.

  19. MrEvil says:

    I haven’t asked my CU about it, but I’m pretty sure you walk in with a nice cash deposit for a CD the CU will let you have a secured credit card.

  20. AllanG54 says:

    If your credit stinks or is even sub-prime you shouldn’t be worrying about making payments. You should be paying in full every month to avoid excess interest which will only put you back in the hole from which you started.

  21. JustaMe says:

    Annual fees are damn near useless, unless the perks totally outweigh the fee. Pay your bill every month in full and it does not matter how high your interest rate is.