While these Americans were likely unable to find lines of credit for some time following such an incident, they may find that they are once again being approved by lenders.
However, consumers with spotty credit histories may find that the new lines of credit for which they are now being approved will have heightened interest rates on credit card debt that need to be carefully monitored, according to a report from CNN Money. Often, lenders will draw in consumers desperate for lines of credit with relatively low introductory interest rates – usually around 29.9 percent – before hiking them as high as 59.9 percent or in some cases even 79.9 percent.
"A lot of the people ran up the card, defaulted and went directly to charge off," First Premier Bankcard chief executive officer Miles Beacom told the news site. "We also tested it at 23 percent, 33 percent, 45 percent, but 59.9 percent is the one that shows the best performance and where the organization can market the product."
First Premier Bank has had almost 700,000 consumers sign up for its bad credit account, and more than half carry a balance from one month to the next, meaning consumers are quickly adding to their credit card debt, the report said. However, this practice is not illegal.
The Credit Card Accountability, Responsibility and Dislcosure Act, passed in 2009, only prohibits lenders from retroactively raising interest rates, the report said. But because these consumers agreed to them initially – likely without reading the agreement's fine print – they are stuck with the high interest rate.
Beacom also noted that First Premier cards for consumers with bad credit histories used to charge high fees in addition to the high interest rates, at least until the Credit CARD Act altered the rules related to how high these charges could climb, the report said. Currently, it opens about 50,000 new accounts every month.
Consumers with a history of struggling with their credit card debt will likely have an easier time dealing with their accounts if they spend less with the cards and pay off their entire outstanding balance every month.