Looking to rebuild your credit score, get new credit after bankruptcy or get access to credit when your credit is in the toilet? Folks with low credit scores or recent bankruptcies are getting deluged with pre-approved credit offers that seem too good to be true, according to folks who have sent me copies of the applications recently. So what’s the deal with these offers? A pre-approved unsecured credit card should do more than just report your credit scores and help you raise your FICO score. A good unsecured card should also make good financial sense. Too often the FEAR of having to rely ONLY on the income that comes in makes people jump at credit card offers that financially will put them in the poorhouse.

Let’s start with a review of CreditOne Bank. CreditOne bills itself as “one of America’s leading issuers of VISA Platinum credit cards.” That in itself tells us a lot about the current state of the US economy since they are one of the largest issuers of subprime credit cards.

Right now, CreditOne is mailing out offers of a “pre-approved credit line up to $1,500.” Here’s why I don’t like these guys. First, off your starting credit line would actually only be $300. There’s a $75 annual fee the first year, which is deducted right off the bat. And then there’s a $99 annual fee starting the second year (we’ll revisit this in a sec). Some online reviews plug the fact that these guys don’t charge an over-the-limit fee, where others charge $35 a month if you’re over the limit. (We’ll get back to THAT in a sec too!)

The interest rate is 23.90% APR (it’s calculated by taking 20.65% and tacking on the Prime Rate, which is currently 3.25%). The total rate can go up to 29.90%. Stiff yet not outrageous compared to other unsecured pre-approved credit cards of this type. Here’s the kicker, though, of why I DO NOT RECOMMEND CREDIT ONE’S CARD.

CreditOne charges interest from the day you make your purchase or charge anything to your card. Even if you pay the bill off in full each month, you’re paying interest on whatever you charged. And if you don’t pay it off in full each month, you then start paying interest on the interest.

So let’s go back to that $99 annual fee. You’re charged that as $8.25/month. Which you pay interest on from the moment they post it to your account each month. Your actual monthly payment then is more like $10.23/month – or an annual fee of $122.76. And as for that perk of no “over-the-limit” fee? They WANT you to carry a balance and don’t mind if it’s over the limit because then they get to add more interest every single day. If you’re carrying a balance of $350 each month, for example, you’re paying them an extra $434 a year. Why would they want to charge you a pesky $35 fee one month to alert you to the fact that you should pay down your bill when they could be getting $434 a year from you? CreditOne – colossal fail.

What about First Premier Bank’s Platinum MasterCard, though?

Much more enticing with their $700 initial credit line and the fact that all interest charges are waived each month you pay your balance off in full (even though they too accrue the minute you make a purchase). But that’s where my kudos for this card end. And here’s why. The first year, you pay a whopping annual fee of $175, which makes your initial credit line $525 – and you’ve got a balance of $175 you’ve got to pay off the first month. On top of that, once your application is finalized, you have to pay an additional $25 processing fee to get the card activated. But wait, there’s more (I feel like a little like Ron Popeil right now!) After the first year, they generously reduce your annual fee to $49 – and stick you with a monthly servicing fee of $14.50 a month, which comes to $174 a year.

And the interest rate if you carry a balance? 36%. That’s right. Thirty. Six. Percent.  That works out to interest of 3% a month. Most credit cards only require a minimum payment of 3% a month – so riddle me this… if you’re paying 3% of your balance each month, and they’re adding 3% of your balance in interest, how long will it take you to pay off your credit card in full? I can hear Buzz Lightyear right now “To Infinity and Beyond!”

Here’s an even more laughable fee they charge: when you’re approved for a credit increase, you’re charged a $25 Credit Limit Increase Fee for every $100 credit addition you get – so they get 25% interest from you in ADDITION to the 36% you’ll get charged if you carry a balance.

In my mind, First Premier Bank is English for “Loan Shark.” Buyer beware.

Got another bank that’s sending YOU credit card offers? Send me information about them and we’ll check ’em out and report back! For a personalized strategy on getting a handle on your credit and debt situation, consider a 30 minute strategy session with me. Email me at paula@paulalangguthryan.com