Credit cards are hard to come by. About 60 percent of all applicants for new cards are rejected, industry experts say, as issuers tighten their lending standards.
It's even tougher to get a secured credit card. The American Financial Services Association estimates that 1.5 million Americans apply for secured cards this year, but only about one-third of applicants will qualify.
Secured cards, born in the 1980s, are growing up fast in the '90s as the number of personal bankruptcies soar and lenders become more averse to risk. Geri Detweiler, director of Bankcard Holders of America in Herndon, Va., said the biggest force driving the secured credit card market is the rising tide of bankruptcies, which topped 800,000 last year.
That is drawing in the big issuers, such as Citicorp, she said, because secured cards are becoming more profitable.
A secured credit card is a way for consumers with credit problems to re-establish a credit record. It is intended for people who have been turned down for a regular card.
Ms. Detweiler said problems arise when consumers apply for a secured card but don't really understand how it works. If an issuer accepts your application for a secured card, you will pay a deposit into a bank, which will hold it as collateral in case you default. The amount of the deposit usually is equal to the amount of credit available on the card.
"You must make your payment monthly, just like with a regular credit card," Ms. Detweiler said. The bank doesn't touch your deposit unless you don't pay. The card looks just like any other Visa or MasterCard.
Unfortunately, secured cards are easy marks for fraudulent marketers. The solicitations are often mailed directly to your home or are in ads in magazines or newspapers. One making the rounds looks like a yellow Mailgram and tells you that you have been pre-approved to a Gold Card with a $10,000 line of credit. All you have to do is send a money order for $29.95 to an address. What you receive is a paper gold card, not a bankcard, that is usable only for merchandise from a catalog sent along with the card.