Worst Credit Cards? For Whom?

Yahoo Finance features an article today from Forbes titled “Bad Plastic: The Worst US credit Cards.” Being a financial planner by trade, I thought I would investigate this further since I could always use some more education on financial topics. However, what I got was simply a list of cards catered toward those with bad credit (so of course the terms were terrible!).

Here’s the scoop – when your credit is in the toilet, you do not have many options to either 1. get credit or 2. build credit. To the rescue come card offers from various banks sporting the following “benefits”: credit given with monetary deposit as collateral (you deposit $300 into a savings account and you have access to $300 worth of credit – like a mortgage this credit is backed by an asset).

In addition, the  rate is often quite high (above 19%) and fees are sizable if your payment is late for example. But this is missing the point – let’s look at it from a different angle shall we?

First, let me start with an analogy: let’s pretend 4 restaurants serve your favorite dish, but one place puts far too much pepper on their version. Will you go to this restaurant? Probably not. Is anyone forcing you to go there? No.  The same with these credit cards – no one is forcing people to take them.

Let’s say you blew your credit – totally ruined it. What would you do? What if you could get one of these cards and could rebuild your credit? The downside is that you will pay a $60 annual fee, 19% interest and have to deposit collateral of $300 – is it worth it? If not, what’s your other option?

What would it be like if you went to a credit counselor? Would there be a fee? How much? What if it were a $150 fee – would that be unreasonable for a debt counseling fee? If you pay a fee to a credit card of $60 and $90 of interest in a year, then you break even. Now I am not saying which is the best strategy, but to make the card sound evil is a bit off. It is simply a high cost card catered toward high risk customers. If you don’t want it don’t take it.

I had to bring this up in light of all the righteous articles out there that take things out of perspective. If I had bad credit, I would get one of these cards and immediately start charging small items and paying it off.  I would look at it as an opportunity for a guy in distress and build from there. I would hope I would not have the idea that with a bad credit history I would deserve a platinum card with a $20,000 limit, much less an interest rate reserved for good customers. I would work to get there, but never expect it be given to me.

By the way here is the article:

Link 

If you’re one of these fellows in debt, good luck – I think you can make it through with patience and medium term (1-3 year) discipline.

Chris Grande