I cannot stress enough that no one should ever fall into what I call the black hole of debt, more commonly referred to as the Sub Prime Credit Card.Sub-Prime Credit Cards are offered to people with little or no credit or just flat out bad credit.These types of consumers are usually young, just getting started with credit or most of all, vulnerable and desperate. Some of these consumers desperately want to re-build their credit with a Sub-Prime Credit Card.In my opinion, a Sub-Prime Credit Card is one of the biggest and most profitable rip offs that I know of simply because they come with enormous fees and charges to the consumer.For example, a sub prime credit card may offer a credit limit of $250.
However, the applicant is immediately slammed with what some of these companies call a $95 program fee, a $29 account set-up fee, $6 MONTHLY participation fee and a $48 annual fee.A total of $178. on a $250 limit, the consumer is left with a credit limit of a paltry $72 before the card is actually used by the consumer.Now these figures are not specific to all Sub Prime Credit Cards but they are in the ballpark.The banking industry notes that it is necessary for Sub Prime Credit Card issuers to charge such high rates because the consumers that are approved for these cards are in debt or have no credit history and therefore are high risk borrowers.I believe that issuers are just cashing in and taking advantage of consumers who are vulnerable, young and uninformed.Sub Prime Credit Cards are the most profitable because of the outrageous fees being charged to consumers.Sub Prime Credit Cards will do very little if anything at all to raise someone’s credit score because the actual available credit after all the fees is very little.Sub Prime Credit Cards assign all sorts of creative names to the fees that they charge. Such as account maintenance fees, monthly maintenance fees, activation fees to confuse and manipulate the consumer.Then of course, we should not forget the ever so popular over-limit fees.Some Sub Prime Credit Cards actually charge up to $150 or more in annual user fees.In many cases, the consumer is required to allow the Sub Prime Credit Card to deduct fees and monthly payments directly from the consumer’s checking account.This can cause all sorts of issues resulting in the consumer’s credit to get worse rather than improve.
Sub Prime Credit Cards target vulnerable consumers and collect hundreds of millions of dollars in profit by charging such high fees.Sub Prime Credit Card issuers say that they serve the consumer that is ‘neglected by the traditional financial institutions’. Pretty noble stuff, don’t you think?Don’t expect Sub Prime Credit Card issuers to change their ways or even lower their fees. These companies are not in the business to make money from charging interest, they are in business to make money by charging large fees.They justify this practice by saying that they extend credit to people that would otherwise not be approved. And since the risk involved is high, they charge a fee comparable to the risk being taken.Now in fairness, Sub Prime Credit Cards may meet or exceed regulatory requirements and industry best practices, and if a consumer makes their payments on time, they should receive an increase in their credit limit and a reduction in the fees.However, it is a long haul to get to a point where someone’s credit will be improved by using a Sub Prime Credit Card.If a payment is missed and the fees are not paid, the consumer runs a greater risk of being turned over to a collection agency and being sued.If a judgment is awarded the issuer or the collection agency, the consumer can have their checking account frozen or have the money taken out of the account or have their wages garnished as allowed by state collection laws.Better to stay away from Sub Prime Credit Cards.Do it the old fashion way. Slow and easy. Make your payments on time; ask your local bank for a ‘starter-loan’ that can help improve your credit score with time. Watch your spending and live within your means.You will sleep better at night.