Many people do not realize that they have damaged credit until they have been turned down for loans and other credit as a result of a low score.
Others who have not paid much attention to being diligent in making their payments in the past are now realizing the benefit of having a good credit rating in the borrowing power that it gives them. As a result they turn to credit repair cards in an effort to bring up their credit scores in a very short time and in so doing are taking a very high risk.
Credit repair cards offer a low line of credit that consumers can use and repay, thus helping them rebuild the reputation they have of damaged credit. Such cards are designed for consumers who have had county judgements or bankruptcy charges as well as those who do not have a good record of making their monthly payments on time and have missed payments.
The current recession has also led to a high number of consumers having to resort to this measure due to lost income that makes it impossible for them to maintain their high credit scores.
The APR on credit repair cards is very high. If you only make the minimum monthly payment required, it may not even be enough to cover the interest charged on the account and this could put the account over the limit. The advertisements of the credit repair card providers allege that by making your payments on time, you will be rewarded with lower interest charges and a raise in the credit limit on the card.
You only have to look at the interest rates charged by such providers, which include Barclaycard, Capital One, SAV Credit and Vanquis to see the exorbitant charges of 35% to 40% interest.
A standard credit card charges about 16% interest and there are those that have interest rates less than 10%.
Consumers who run up the credit limit on their credit repair card can ultimately run into severe financial difficulty as the interest each month gobbles up the payment making it virtually impossible to repay any of the outstanding balance.
According to Ricky Bruce of Moneyfacts, this sector of the credit card industry is almost impossible to monitor. “Many providers don’t provide us with interest rates because they don’t want the spotlight thrown on them,” he says. “It makes it impossible for consumers to hunt down the best deals.”
A representative of the charity National Debtline, Betsy Boden Wilks offers consumers advice about taking out credit repair cards. She says they should consider other options, which include asking for an overdraft on existing loans or credit cards or asking for a note to be added to your credit record explaining your individual circumstances at the time.
She adds, “It may be the case that you’ve had an excellent credit record in the past, but due to redundancy you’ve fallen into difficulties. As a result, the lender may look more favourably on any application.”
With Vanquis credit repair cards, the typical APR is 39.9%, but some borrowers have been charged a whopping 59% interest. The amount of interest that you do pay on such accounts is closely tied to your current credit score. So, instead of making things better, you run the risk of making things a lot worse.