Credit Cards for People with Bad Credit

The CARD Act has made a lot of changes in the credit card market. As the industry adjusts to the law, the final phase of which took effect Aug. 22, consumers seeing the most changes in credit card offers are those with subprime credit (meaning FICO scores below 660).

The biggest change for people with average credit, or scores between 620 and 660, is the ability to get a credit card without an annual fee. Due to the CARD Act's restrictions in penalty fees, this group will find it virtually impossible to find a card they qualify for that does not charge one.

Although this may sound like a bad side effect, it is less expensive overall. The CARD Act puts restrictions on the maximum fees allowed and has forced companies that offer credit cards for fair credit, such as Capital One ( COF) and Orchard Bank ( HBC), to charge them in a much more transparent way.

Even more drastically affected are consumer with bad credit, or FICO scores below 620. New regulations have completely changed the structure of credit cards for bad credit, offered by companies such as First Premier Bank and CompuCredit ( CCRT):

Before, a company would typically offer a consumer with bad credit a card with a $250 limit. By the time the consumer actually got to use the card, though, there was already $200 in fees charged on it. Essentially, a consumer had to pay $200 to have access to $50 worth of credit.

Now the cardholder may not be charged more than 25 percent of the credit limit in fees within the first year the account is open. A typical offer is a credit card with a limit of $300, with only $100 to $125 in fees charged by the time the cardholder can use it. This includes a typical annual fee of $75 and -- the biggest difference -- a processing fee that must be paid before the account is open (usually between $25 and $45).

APRs have drastically increased, but assuming the card is used only for emergencies or as a short-term loan, the cost will still be less.

The changes have made secured credit cards more popular. These work just like a regular card, except that a minimum deposit of $200 is required to open the account. The credit limit matches the amount of the deposit put down. There is no additional line of credit like on an unsecured (regular) credit card, but cardholders pay much less in fees and finance charges. To simply rebuild credit, this is the best option.

As more people with FICO ( FICO) scores below 620 consider secured cards, more companies have started to offer them. Capital One, for example.

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Odysseas Papadimitriou is founder and chief executive of Evolution Finance, the parent company of Wallet Blog and Card Hub, an online marketplace for credit-card offers.