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Money Troubles? You Can Still Get a Credit Card – Expect to Pay a Premium

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A new trend is developing on the credit card landscape as 2011 dawns. Banks will okay credit for troubled borrowers, but the strings attached are growing longer and longer.

The New York Times reported that credit card companies are more than willing to dip their toes back into the pool of high-risk consumers. Why would they do that, given the toxic credit tsunami of 2007-2009?

The short answer is they need the cash. Between tougher government rules on what kinds of fees and penalties card carriers can charge and the cutback in credit card spending among U.S. consumers, card companies have a liquidity problem on their hands.

Card companies have absorbed $189 billion in card losses since 2007, says the Oliver Wyman Group, a financial consultancy. And, according to Smart Money, consumer spending is up 2.2% so far this year, but credit-card purchases among some of the big vendors – Visa, MasterCard, and Discover – are in a decline.

That doesn’t mean they’re pushovers. The Times reports that card companies are being more choosy this time around and that “stricter terms” are part and parcel for high-risk customers gaining access to credit cards. Customers who stand the best chance of getting a card are “strategic defaulters” (homeowners who walked away from their mortgages) and “first time defaulters” –usually people who lost a job, but found a new one and are once again a good credit risk.

Now that credit card companies are easing back into the sub-prime card market, consumers should be aware of what that means.  Capital One, for example, is offering new cards to high-risk borrowers with interest rates of 18% – and a $50-per-year annual fee. And Citigroup is testing the same waters with its CitiMax card, which is earmarked for consumers who suffered some credit losses during the recession. Card recipients must agree to link their card to a bank checking account. If a payment is missed, Citi will then have access to withdraw the funds.

So, if you see a new credit card offer in the mail, and you’ve had financial problems in recent years, make sure to read the fine print. It could be costing you way more than you think.

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