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Some subprime cards soften up on APRs, fees

Kelly Dilworth

If you’re rebuilding your credit, a number of subprime cards launched in recent months pair reasonable APRs with minimal charges.

Green Dot – the company best known for its prepaid card – is now offering a secured card that helps consumers with bad credit improve their scores. Unlike many subprime cards, the new Green Dot Platinum Visa secured card isn’t loaded with heavy fees or weighed down by an exceptionally high APR.

Green Dot charges a flat rate of 19.99 percent, below the average APR of 22.86 percent for subprime cards, according to CreditCards.com’s Weekly Credit Card Rate Report. Meanwhile, some unsecured credit cards for people with bad credit come with APRs as high as 36 percent.

The new Green Dot secured card doesn’t charge a penalty rate, making it a safer card for consumers at risk of occasionally missing a payment. Many cards charge penalty rates as high as 29.99 percent. It also doesn’t pile on a ton of fees, such as processing or servicing fees, which are often found on unsecured subprime cards. However, the Green Dot card does charge a relatively high (for subprime cards) annual fee of $39.

Discover also introduced a new secured card in 2016. While the Discover it Secured Card  has a higher-than-average APR of 23.24 percent, it has significantly fewer fees. Unlike most subprime and secured credit cards, the Discover it Secured Card doesn’t charge an annual fee, nor does it charge a penalty rate. It also doesn’t charge a late fee on your first late payment.

Several other major banks offer secured cards with better terms than the average subprime credit card. For example, the Wells Fargo Secured Visa has a 19.24 percent APR, no penalty rate and a relatively low $25 annual fee. Similarly, the U.S. Bank Secured Visa has a 19.24 percent APR, no penalty rate and a $29 annual fee.

Bank of America, Capital One and Citi also offer secured cards, but those terms aren’t nearly as favorable. The BankAmericard Secured MasterCard, for example, advertises a relatively low APR of 20.49 percent, but charges a penalty rate of up to 29.99 percent.

As the economy continues to improve, lenders are increasingly turning their attention to consumers with damaged credit histories, which is making it easier for those with bad credit to access decent cards. An August 2016 report from the New York Federal Reserve, for example, found that a “disproportionate” number of new cards were going to consumers with lower scores.

Unsecured subprime cards still a bad deal
Many of the best credit card offers available to consumers with lousy credit scores are for secured cards, which allow banks to cover their losses by having cardholders put down a refundable deposit to act as the card’s credit line.

Unsecured cards available to consumers with bad credit, by contrast, often have strikingly high fees and APRs. The First Premier Gold card, for example, charges a 36 percent APR, a $95 processing fee, a $75 to $125 annual fee in the card’s first year and a monthly servicing fee of $6.25 to $10.40. Meanwhile, the Total Card Visa charges a 29.99 percent APR, an $89 processing fee, a $75 annual fee in the card’s first year and a $6.25 monthly servicing fee.

The Credit One Platinum Visa offers slightly better terms than other unsecured subprime cards. Its APR ranges from 15.65 to 24.15 percent, depending on your creditworthiness, and there are no processing or monthly servicing fees. The card’s first year annual fee (up to $99 thereafter), though, is still relatively steep.

What to look for in a subprime card
If you’re looking for a new subprime card, consider getting a secured card – especially if you plan to carry a balance. You’re much more likely to be offered reasonable terms and to be able to duck excessive fees.

Also, avoid any card that charges an APR that’s well above the average for subprime cards, and skip any card that charges processing and monthly servicing fees.

Finally, look closely at the penalty rates and late fees. The safest subprime cards don’t charge penalty rates when you’re late on your bills and don’t have large annual fees or late fees.

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