Consumer Beware: Subprime Credit Cards May Be Predatory
The cards are more expensive than prime cards and target the less educated
There are more differences between credit cards than whether they are a VISA, American Express, Discover, or MasterCard. Different cards offer different types of rewards and incentives, and they are targeted at different types of customers based on factors such as education. Many of these may be predatory.
As might be expected, people who have excellent credit are able to qualify for cards with the best rewards and the lowest fees. Those who have subprime credit, on the other hand, may qualify only for cards with the worst rewards and the highest fees.
And it turns out, according to a new report issued by personal finance site NerdWallet, that subprime credit cards may be predatory.
Consumer Affairsstates that the authors of the report examined internal and external data in order to figure out the problems with the cards as well as potential solutions. The report contains several findings.
One is the large size of the market for subprime credit cards. Consumers who have low credit scores—roughly 600 or below—likely have a subprime card if they have a card at all. This category includes approximately 48 million people. If these consumers are able to qualify for credit, they get the worst terms, and they may also pay more for insurance as well as experiencing more limited housing and job options.
Subprime cards are more expensive than prime cards, and they use more complicated agreements and fee structures even though their target market is less educated.
If a consumer has subprime credit, the best thing he or she can do is to improve his or her credit score. Those who have subprime credit cards should pay the balance down as much as possible before using the card again and, if possible, make only those charges that they can pay in full at the end of the billing cycle. It would be best for them to replace subprime cards with secured cards; although the credit limit of these cards is determined by how much a consumer deposits to secure it, he or she may save an average of $125 per year in fees.
Finally, consumers should pay all bills on time each month, including their credit card bill. This is the fastest way to improve a low credit score.