Advance fee credit cards are just another way to take your money

At some point in their lives, nearly everyone has the difficult task of trying to establish credit. It’s not enough to have income; you have to have a track record of paying bills on time. How do you do that if you have no bills to pay? Obtaining credit is easy if you already have credit. If you don’t, then establishing credit can be a nightmare. Some companies are taking advantage of this problem in the system by offering “preapproved” credit cards to consumers who may have problem credit. The deal seems promising; after all, the letter says, you are “preapproved.” But preapproved for what, exactly?

All you have to do to get one of these accounts is call a toll free number and send them payment or give them your bank account number so that they can collect their fees. These cards, which are offered from a number of different companies, look and feel like real credit cards. They come with fees like real credit cards do, and they can be used to make purchases. Unfortunately, the similarities end there. The fees can be astronomical, and they are added to the card’s balance before you make your first purchase. 

What sort of fees? Activation fees, processing fees, monthly membership fees; you name it. Such fees often amount to several hundred dollars, and sometimes the total of these fees comes close to the total limit of your account! If you have a $200 limit, you might find yourself with $175 in fees added to your card the day you get it. That means that you only have, in effect, a $25 limit until you pay off the fees.

The troubles with these cards don’t end there, either. Once you have paid several hundred dollars to get your card, you will realize that you can only use the card to buy merchandise from the company’s own catalog. You can’t use the card at your favorite department store or the gas station or online at Amazon.com. You can only buy what the company chooses to sell, and if you choose to buy, you’ll have to pay the company’s prices.

“That’s OK”, you’ll say, “because I am establishing credit.” There would be something to that, if only it were true. Most of these companies do promise to report activity on their accounts to the three major credit bureaus. If they did so, that would, indeed, help your credit standing. Your credit score is based on paying bills on time and in full. The problem is that in order for this to work, your financial transactions need to be reported to the credit bureaus. While most of these companies do claim to do so, few actually do it. That means that you are not only spending a lot of money on fees and even more money on overpriced merchandise, but you are doing so without any hope of establishing credit in the process.

Real offers of credit, approved or not, do not require that you pay money up front, other than an annual fee for their use. If you get such an offer in the mail and are tempted by it, make sure that you read the fine print in the agreement carefully. Otherwise, you could be spending a lot of money for nothing.

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