When I look at a client’s credit report and he or she asks me how they can build their credit, I always recommend getting new credit. A great way to do this is to apply for secured credit cards. Even people with bad credit can get them.

With the Credit Card Accountability Responsibility And Disclosure Act going into effect Feb 22, all the rules concerning those little pieces of plastic that make the world go round are changing. Let’s see if anything is going to change for secured cards after the new laws go into effect.

The Amount of Fees Are Limited
New Rules There used to be several cards around which offered a $300 credit limit but the fees for opening that card added up to $290, leaving the consumer with $10 free in their credit line. The new law limits fees on “fee-harvester” subprime cards. In the first year after issuance, nonpenalty fees cannot take up more than 25 percent of the initial credit limit.

How Much of a Credit Limit Can I Get?
Unchanged Under the new rules, card issures have to take into account the card holder’s ability to repay the debt. Secured cards limits are directly proportional to the amount you put down as security, and it’s usually 1:1. For example, if you use $500 in a savings account as security, your credit limit will typically be $500.

With a secured card, ability to repay isn’t an issue, since the card is secured by the savings account of the card holder.

Where You Can Get One
Affected By New Laws Secured cards are getting pretty rare due to the new crackdowns on fees. However, credit unions are still offering secured cards at reasonable rates. I know, I’m enthusiastically endorsing credit unions again, but they are too good to not mention. If you’re a credit union member, ask about a secured card there. About half of the nation’s credit unions offer secured cards to their members and may offer lower interest rates and waive annual fees.

Card Insurance
Law requires a Study of Insurance A study of the insurance purporting to make payments if you lose your job has been suspected of being fraudulent is required by the new law.

The new law does not address another kind of insurance offered card holders: “loss or theft”. Even if you have good credit and have an unsecured credit card, having card insurance in case of “loss or theft” is a bad idea. Why? You already enjoy free Federal protections against identity theft and lost or stolen cards under the Fair Credit Billing Act. It’s completely unnecessary and a total rip off.

Card Reporting to the Three Bureaus
Unchanged There is no law requiring a credit card issuer to report to the credit bureaus. However, what’s the point in getting a secured card if they don’t report to the three credit bureaus? There isn’t one. In addition, if the secured card reports to the bureuas as a “secured card” you are going to be penalized for having that card.

Overall, the new laws protect consumers who want a secured card only in the fees that can be charged, but this is huge.

Are you interested in getting a secured card? Have more questions about the new laws? Ask them by leaving a comment!

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