credit cards

Secured credit cards harder to get

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Highlights
  • The number of secured card offers has dwindled to less than a million in 2008.
  • Issuers can't generate enough revenue from secured cards to offset administrative costs.
  • Read the terms and conditions carefully before signing up for a secured card.

If you're someone who needs to establish or rebuild your credit, don't wait for secured card offers to land in your mailbox. Direct-mail offers for a secured card are quietly dwindling in number, and fewer major issuers are offering the credit cards.

Secured credit cards are those backed by a deposit made by the consumer, typically equal to the credit limit of the card. That collateral, usually a minimum of $200 or $300, sits in a savings account that isn't tapped unless the cardholder defaults. Because these cards pose little risk to banks, they're easier to obtain and can help people who can't qualify for unsecured cards to build a good credit history.

The volume of secured card offers has seen a precipitous drop in recent years." The decline in secured card offers is substantially greater than the overall decline in credit card mail offers in total," says Stephen Clifford, vice president of financial services for Mintel Comperemedia, a marketing research firm based in Chicago.

His company estimates that the number of mailed secured card offers plummeted from 122 million offers in 2001 to less than a million offers in 2008, while the volume of credit card solicitations mailed to U.S. households sank by about 18 percent during that same time period, from 6.7 billion credit card offers to 5.4 billion offers. Secured card direct mail volume fell by 58 percent from 2007 to 2008.

Eight years ago, Capital One, Washington Mutual, Credit One Bank and HSBC Bank were the biggest issuers that sent secured cards offers, says Clifford. Of these, only HSBC still offers a secured card. Chase, which acquired parts of Washington Mutual in September 2008, closed WaMu's small secured card program, and doesn't offer its own secured card product. As of 2008, the biggest mailers were New Millennium Bank, which targets subprime borrowers, followed by Bank of America.

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Why secured cards are dwindling
It may sound counterintuitive that fewer major issuers would offer such a low-risk product, but the pullback comes down to profitability. "It's not necessarily the risk in the context of the secured credit card relationship, but potentially the risk of establishing that type of relationship customer basis in a credit sense," says Bruce Cundiff, director of payments research and consulting at Javelin Strategy & Research, a financial services research firm in Pleasanton, Calif.The administrative costs of opening and managing the accounts must be offset by the fee revenue from the cards, because people don't typically revolve sizable balances on these low-limit cards.

In other words, people must use them. He says that alternatives to secured cards, such as prepaid cards and debit cards, which can serve as payment cards for those with poor credit, erode their profitability.

"The indication we're getting from these large issuers in paring back their secured credit card programs is that we're on the other side of that balance right now, where it's not necessarily worth it to go through all the effort necessary to issue that card," says Cundiff.

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