In Mercator Advisory Group’s research on secured cards, we noted how the market changed since the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) eliminated a series of unfair practices.
Before the regulation, the market was filled with hard money lenders who took advantage of borrowers with sky-high interest rates and even worse junk fees. Things like application fees, activation fees, and risk fees tainted the product.
The CARD Act cleaned up the business, and now top lenders, from Bank of America, Chase, Discover, and US Bank, offer worthwhile cards, with interest rates ranging from 11.65% to 24.99%, and reasonable, in-range fees. Mastercard and Visa also came out with more rigorous standards for their franchisees.
We peg the U.S. market at almost 5 million cards today, with the potential to embrace 500 percent more, given the number of low-banked, underbanked, and unbanked in the market.
Here’s a nice story on a successfully secured card at KeyBank, posted at Yahoo Finance.
- Secured Credit Card customers are graduating this month after less than one year of using the tool, and two-thirds (65%) of those graduates are Millennials (those born between 1982 and 2000), as many in this generation struggle to find their financial footing and are turning to secured credit cards to establish good credit.
- “Millennials, many of whom came of age during the 2008 recession, are saddled with debt and looking for ways out of it,” said Mitch Kime, Head of Consumer Payments in KeyBank’s Enterprise Payments group.
- “Our Secured Credit Card helps them overcome the barriers they face to establishing a strong credit history that makes financial achievements, like renting their apartment, a reality.”
This is not rocket science, merely proper credit management.
- KeyBank’s Secured Credit Card improves financial wellness by providing eligible clients with simple access to credit while helping them develop good spending habits and an educational foundation for future credit cards.
- Cardholder accounts are reviewed twice each year to determine if the client meets the criteria to graduate to an unsecured credit card.
- Millennials, who are often new-to-credit and lack creditworthiness more than any other generation, find the tool particularly useful. Young adults and recent college graduates, ages 21 to 25, comprise the largest segment of Secured Credit Card customers, showing that younger Millennials are taking advantage of this credit steppingstone as they work toward financial independence.
Working in credit for decades often brings friends and acquaintances with questions about “what is the best card for me to get?” Many times my answer is something along the lines of a Chase Freedom card, which I like because it carries an excellent reward structure, and the quarterly bonuses are always attractive.
Discover It is often an option, also, because Discover’s customer service is exceptional. Also, nothing beats American Express’ Blue Preferred card if you manage rewards for grocery purchases, which pays 6%.
And, then there was my middle adult child who needed a card a few years ago. He asked me to put him on one of the mine cards as a secondary user. Sorry, I co-sign for no one!
Instead, I set him up with a secured card, which I funded at $350. His to manage, but I figure I got off cheap. So did he.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group