Customers with rock-bottom credit yield sky-high profits for banks

The way we live today makes it hard to function without a credit card. You can do it, but getting a hotel room, a plane ticket or a rental car without a credit card is difficult, at best. But for those people who have troubled financial histories, getting a major credit card can be difficult. There are banks that will offer cards to people with problem credit reports; a secured credit card works well for such customers. The bank requires a deposit, and that deposit becomes the amount of your credit limit. You get the card, and the bank gets the security of knowing that they are protected against improper use of the account.

But some people with poor credit cannot afford a deposit or simply do not want to put aside $500 or $1000 for a credit card deposit. They would like the same sort of unsecured credit card as everyone else. Is that possible? Sure, it’s possible. There are still banks out there that offer unsecured credit cards to people with poor credit scores. But there is a hitch - those cards are very expensive. In fact, the argument could be made that the terms offered by such banks are predatory. 

How much money can you spend on a credit card? A lot, as it turns out.

One bank, offering a “clearly superior” credit card, offers these terms:

• A variable interest rate that consists of the Prime Rate plus 15.74% with a 23.99% minimum. The rate could be higher.
• The default interest rate, if you pay late, is Prime Rate plus 21.74% with a 29.99% minimum. The rate could be higher.
• The card comes with a one-time setup fee of $50. The card includes a monthly maintenance fee of $10.95. 
• Late payment fees and over limit fees are either $32 or $35, depending on your available limit.

The bank would insist that these terms are necessary because people with bad credit are more likely than average consumers to pay late or not pay at all. That is certainly true, but these things are usually taken into account when calculating the interest rate that will be offered on the card. After all, as this is written, the Prime Rate is 7.75%.  A 23.99% interest rate would probably cover the costs of those who default, but this bank adds $131.40 in annual maintenance charges to every customer’s accounts, whether they are paying on time or not.

Banks offer cards like these because they know that people who don’t know any better will take them. They also offer cards like these because they are wildly profitable. If you have problem credit, there are banks that can help you without requiring you to pay fees like these. You may have to shop around a bit, and you will have to pay more than most people, but you should be able to avoid cards like this “superior” one. If you know how to pick a credit card, you can find one that suits you.

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