No Fee Secured Credit Cards

by Mack Bartlett

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Fees. Business owners dream of being able to charge them, customers will do almost anything to get out of paying them.

Why do businesses charge fees? Of course the simple answer is they want more profits. There’s more to it than that though. The reason for fees has more to do with a business minimizing its risk than anything else. A lot of you are looking for no fee secured credit cards. It annoys you to think you’d have to pay anything up front for the privilege of using a credit card. You might say “What does charging stupid fees have to do with minimizing the risk a business faces?” Well, I’ll tell you. And you’ll be surprised you at how reasonable the concept really is (from the credit card companies’ point of view, anyway).

As an example, let’s look at credit card providers. They’re in the business of giving you unsecured (read: risky) lines of credit. Then they have to wait for you to buy things with those credit cards (and who knows if you ever will), and they have to hope you don’t pay off whatever balance you ran up during the month (if you don’t then you got to use their money for free). In other words, a lot of things have to go right for a credit card company to make money off you.

But while they’re waiting for you to spend money you don’t have, and carry that balance month to month, are they incurring any expenses? You bet. Think about it – marketing costs for those TV commercials and all the junk mail they send you. Then when you respond to an offer the sent you in the mail they have to pay people to process those applications, people to answer your questions when you call in to ask when you’re new card will arrive, people to manage the people on the phone, leases on buildings, the list goes on.

That’s a risky venture for the card provider – they might spend a few thousand dollars on you before you ever give them a penny of revenue. And what if you never spend the money or carry the balance? They’re out of luck, and out a few thousand dollars.

So here’s what they do. They look at patterns. They know that for every 1000 pieces of junk mail they send out, a certain percentage of people will respond and apply. Of the applicants, a certain percentage will be approved. Here’s where the fees come into play. At this point if the credit card company could charge $39 or $79 to every person that got approved, they’ve recovered a big part of the upfront cost of acquiring you as a card holder.

It may not stop there. With a lot of secured credit cards they charge a monthly fee just to keep the account open. By now, you know why. It’s just a way to make sure they make at least some money off you in case you’re not using the card they gave you and paying outrageous interest. It’s the same revenue model as so many subscription-based websites we all pay $9.99 or $14.99 per month for.

All that being said, in many cases the competitive nature of the credit card industry has forced them to stop charging such ridiculous fees. Most of the credit cards you apply for won’t require you to pay any fees at all. So, when you get ready to open any kind of credit card, make sure you’re getting something excellent in return for any fees you pay.

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