Secured Credit Card Marketing Scams

Ads like this may appeal to you if you have a poor credit history or no credit at all. Beware: while secured credit cards can be an effective way to build or re-establish your credit history, some marketers of secured cards make deceptive advertising claims to entice you to respond to their ads.

USE CAUTION
Turning to a business that offers help in solving debt problems may seem like a reasonable solution when your bills become unmanageable. Be cautious. Before you do business with any company, check it out with your local consumer protection agency or the Better Business Bureau in the company’s location. One rule to remember is that if a credit repair offer seems too easy or just too good to be true, it probably is too good to be true. And knowing your rights can help you steer clear of rip-offs. For example, according to state and federal laws, companies that help people improve their credit rating cannot:

• Make false claims about their services.
• Charge you until the services are completed.
• Perform services until the waiting period has passed. After you sign the written contract, you have three days to change your mind and cancel the services.

Secured vs. Unsecured Cards
Secured and unsecured cards can be used to pay for goods and services. However, a secured card requires you to open and maintain a savings account as security for your line of credit; an unsecured card does not.

The required savings deposit for a secured card may range from a few hundred to several thousand dollars. Your credit line is a percentage of your deposit, typically 50 to 100 percent. Usually, a bank will pay interest on your deposit. In addition, you also may have to pay application and processing fees — sometimes totaling hundreds of dollars. Before you apply, be sure to ask what the total fees are and whether they will be refunded if you’re denied a card. Typically, a secured card requires an annual fee and has a higher interest rate than an unsecured card.

Deceptive Ads and Scams
The Federal Trade Commission (FTC) has taken action against companies that deceptively advertise major credit cards through television, newspapers, and postcards. The ads may offer unsecured credit cards, secured credit cards, or not specify a card type. The ads usually lead you to believe you can get a card simply by calling the number listed. Sometimes the number is not toll-free. A ‘900’ number service, for which you are billed just for making the call, may instruct you to give your name and address to receive a credit application, or give you a list of banks offering secured cards. It also may tell you to call another ‘900’ number — at an additional charge — for more information.

Deceptive ads often leave out important information.

The cost of the ‘900’ call — which can range from $2 to $50 or more;
The required security deposit, application, and processing fees;
Eligibility requirements like income or age;
An annual fee or the fact that the secured card has a higher than average interest rate on any balance.

How to Avoid the Scam
To avoid being victimized, look for the following signs:

Offers of easy credit. No one can guarantee to get you credit. Before deciding whether to give you a credit card, legitimate credit providers examine your credit report.
A call to a ‘900’ number for a credit card. You pay for calls with a ‘900’ prefix — and you may never receive a credit card.
Credit cards offered by “credit repair” companies or “credit clinics.” These businesses also may offer to clean-up your credit history for a fee. However, you can correct genuine mistakes or outdated information yourself by contacting credit bureaus directly. Remember that only time and good credit habits will restore your credit worthiness.

Credit Reporting
If you’re considering a secured card as a way to build or re-establish a credit record, make sure the issuer reports to a credit bureau. Your credit history is maintained by companies called credit bureaus; they collect information reported to them by banks, mortgage companies, department stores, and other creditors. If your card issuer doesn’t report to a bureau, the card won’t help you build a credit history.

For More Information
To build a credit record, you may want to apply for a charge card or a small loan at a local store or lending institution. Ask if the creditor reports transactions to a credit bureau. If they do — and if you pay back your debts regularly — you will build a good credit history.

If you cannot get credit on your own, you can ask a relative or friend with a good credit history to act as your cosigner. The cosigner promises to repay the debt if you don’t.

If you’re having problems paying bills, you may want to contact a credit counseling service. Non-profit organizations in every state counsel consumers who are in debt. Counselors try to arrange a repayment plan that is acceptable to you and your creditors. They also can help you set up a realistic budget. These counseling services are offered at little or no cost to consumers. You can find the office nearest you by checking the White Pages of your telephone directory.

Sometimes, non-profit counseling programs are operated by universities, military bases, credit unions, and housing authorities. They are likely to charge little or nothing for their services. Or you can check with your local bank or consumer protection office to see if it has a list of reputable low-cost financial counseling services.

Where To Complain

The FTC works for the consumer to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.