Credit Cards for that "fresh or new start"

You've seen them in the mail, several a week, credit card offers that tell you that you are pre-approved. What does "pre-approved" really mean? Does it mean you passed all the credit requirements and have a score good enough for approval? Does it mean that you are going to automatically be awarded that credit card? No it does not. "Pre-approved" in their (Credit Card Companies) sense of the word actually means that they bought a list of people, mostly from the credit bureaus, that met the requirements that were sought. It says this in their disclosure brochure. In these cases, the people who have a range of scores that are on the low side, people who have less than perfect credit or just starting out with no credit history but who seem to have enough money to spend are the ones they are looking for. In some offers they are using the word "pre-qualified" which is basically the same thing. You're in a target class.

I took a minute to tear into some of these offers for the credit builder and/or new credit consumer and the following is what I found. In general, those who need to hang on to their money the most are the ones being targeted for these offers. Let's look at one of the most popular and well advertised "beginner/rebuilder" credit cards called First Premier Platinum Mastercard from Sioux Falls, SD. The offer I see actually says you are pre-approved for the First Premier Platinum MasterCard. This offer is showing a 9.9% rate on all purchases made with this card. That's a great interest rate for this type of credit card but buyer beware.

First Premier says that you will be granted AT LEAST a $250 credit limit. I've yet to see many applications approved for more than that. Now from that $250 credit limit, they (First Premier) are going to add charges immediately. You don't even have to worry about charging anything because most of your limit will be eaten up by the following fees upon opening your account. You will have an annual fee of $48.00. Then there's a one time program fee of $95.00. So far that's $143.00 in fees. Add to that an account set up fee of $29.00 and a monthly service fee (not finance charge) of $7.00. This is a grand total of $179.00 in fees on which you must start paying. With a $250 credit limit that leaves you with a $71.00 available credit line. You could single handedly eat that available credit by asking for another card on the same account for which you would be charged an annual $20.00 and a one-time $3.95 Internet access fee should you want to watch your balance often online. This leaves you with $47.05 left to use. God forbid you ever ask for a credit increase as this will cost you another $25.00 each time you request one. Now, if you should ever go over your limit of $250 anytime during the 25 day billing cycle, charging more so that the balance is above your credit line, you will be hit with an over limit fee of $29.00 at the moment you are over your assigned credit limit. The program doesn't wait to see where you are in your balance at the end of the cycle. Pay attention because the payment cycle is every 25 days and with that, if you should be as much as one day late on your payment you will be assessed a $29.00 late fee. You can choose to pay online or send a check. The convenience of "pay by auto draft service by phone" will set you back another $11.00 a payment in addition to the amount you want to pay. You could opt to use an "Internet auto draft" payment and this will cost $7.00 a payment. So you have to pay to make a payment. Hmmmm, interesting concept. Well, this is a "bank" is it not? You basically could become fee'd to your financial death.

While you start with a 9.9% annual interest rate, if you are late paying your payments two times in a 6 month period or you are late two months in a row, you will automatically go to a penalty interest rate of 19.9% on your balance. You do, however have a chance to redeem the 9.9% if you pay "on time" for three consecutive months. Finally, there is the option of opting in for their Premier Credit Protection Plan which makes you think that you need protection if you lose your job or get sick and are unable to pay your bill. Let me tell you now that is about as worthless as throwing your money into the wind. In the time it takes to fill out all the insurance paperwork and dance through all the hoops you have gotten yourself a mountain of mess with no guarantee you will find relief. If you get your account closed with more than a $20 balance you will be charged $3.00/month until paid off.

Bottom line, First Premier wants you to charge to help you build or rebuild your credit so they help you along in the process guaranteeing you use the card by charging all these fees in the beginning. As if we need help charging things on credit in this society. I'm kind of kidding here. Make no mistake though, all these fees are income makers to First Premier Bank, however, the bank really is taking some risks in extending small amounts of credit to those who can't find it elsewhere. By charging you all these fees up front, First Premier is making sure that they are the beneficiaries of at least some of your credit card activity. Is your head spinning yet? Do you have the time to stay on top of this one more complication in your life? I wonder how many accounts get closed in relation to the number they open due to inability to manage this card? All this for a mere $250 in credit. You'd do better to pay yourself these fees right into an ING Direct savings account for use when you need it until you can qualify for the better cards.

At this point, if this is your last resort (in some cases the only resort) for a credit card you need to think about the following things. If a creditor sees you have a First Premier Credit Card there is a red flag that you have had trouble in the past or are a first time borrower with no credit history and First Premier is taking a chance to allow you to rebuild or establish your credit. It's not exactly a stellar card to boost your reputation with credit and yet it does serve a purpose for those who can't get credit anywhere else or those just starting out. I am not sure if FICO, the company who is responsible for calculating credit scores looks at who you have credit with as much as the history that is reported. For that reason the "type" of credit card it is MAY not be as harmful to further credit with others. It is a definite option and when managed correctly over time can move you on to the "big boys" of the credit card industry. Finally be aware that with this card you may be fee'd into a downward financial spiral if you don't manage and manage well.

If this is your best option try to live by the following advice. Use caution and pay attention to the fees and the rules. Pay on or ahead of time. Try to pay the card off every month or just leave a balance of a suggested 5-10% of the credit limit for the next month. Don't ask for an increase in your credit limit unless they tell you they will do that for free. Don't use it for cash withdrawals as those fees are even at a higher percent payback. And when you make a payment, don't wait till the last day, send your check 5 or more days ahead of the due date. Internet access for those who do most things via the Internet might be worth the one-time $3.95 fee for managing purposes.

One other note: If you are tired of receiving these notices you can call 1-888-675-8688 to stop receiving "pre-screened" offers of credit from this and other companies.


First Premier Platinum Mastercard is not the only card of this type. Many have followed this model and below I have reviewed a few of them for comparison purposes. In fact this has become a popular offer as the personal credit crisis increases. Sub-prime Credit Cards, as they are called, have become a new industry. Below I have reviewed 4 programs, 2 Mastercard and 2 Visa. You need to read the fine print to make sure you understand the terms of each.

Click this link to see the table comparing the cards discussed above.