They are everywhere! Buy it today, and don’t pay anything for six months! No payments, no interest until 2010. Some businesses will tell you whatever you want to hear in order to get you in their doors and buying their products. “Bad credit? Low credit? No problem” they say. But how can they say that? How do people with credit problems end up with a new line of credit?
One of the answers for getting you to buy is a common line of catalogs instant credit offers. This is a type of credit that stores, chains or catalogs offer for purchasing their products. What you don’t know about a catalog credit account can hurt you financially. It is important to understand all the terms and conditions of any credit agreement you sign. Creditors are not always going to tell you everything you need to know. Some will only tell you what you want to hear in order to buy.
There are pitfalls to a catalog credit account. One of those pitfalls is that because a company uses this type of account with clients who often have low credit scores, they are a higher risk type of credit. Higher risk has higher cost, and the lender will pass the higher cost along to you.
Another item to be aware of is what kind of account you are opening. Does your agreement require equal installment payments with prearranged due dates? Or is your account a revolving credit account that is accruing interest with every month the balance is unpaid?
If you think you are opening an account with predetermined interest and installment payments, be sure that is what you sign before you make your purchase. Otherwise you could end up paying hundreds of dollars more than you planned on as interest accrues while you make monthly payments. Read your terms and conditions!
Don’t be fooled if your lender sends you a Visa or Master Card or other brand name credit card when you open a catalog account. You cannot use that card for purchases outside the limits defined at the time of your initial purchase. Even as you pay off the balance and have credit available on that card, the card is only good for merchandise from the original vendor. Just because it says Visa doesn’t mean you can use it anywhere Visa is accepted. Sometimes these catalog credit accounts are presented as a standard line of credit. READ the fine print before you sign.
Another trick that may fool you is that you get approved for a much larger credit amount than your purchase. Again, that doesn’t mean you can use the account to pay for something else. You can only use it with that particular vendor. By the way, they do that on purpose, hoping you will spend more money than you originally intended.
Another potential catch to the catalog credit account is that some require a membership fee to join. Another is that they require a minimum purchase amount before you can be dropped from their membership rolls. Until you meet that minimum, you are on the hook to keep purchasing from them. That means they keep sending you products you may not want, while they keep hoping you won’t return them. If you don’t, you owe them the whole purchase price. You will find book vendors and music vendors that employ this type of catalog account.
Something else to remember in your consideration of opening credit is that there are scams out there that can defraud you out of a LOT of money. While you may think you could never get scammed, think again.
Some companies present themselves as catalog credit companies, but they are out to take your money and offer you nothing in return. Here are a few warning signs.
NEVER respond to a credit solicitation you receive by email. These are usually crooks looking for easy prey. They send an application to your email that they have either purchased from someone else or phished. These applications sound too good to be true, especially if you are struggling to get credit and have a low credit score or have never had credit before.
NEVER send money to a potential lender as security to open a catalog credit account. Again, these people will have vanished off the face of the earth before you realize you have been conned. A reputable company will not ask you for money up front in order to issue you credit. If they think they can’t trust you, they won’t give you credit.
NEVER pay an activation fee for a card you receive in the mail. This one has happened to people I have talked to. You receive a real-looking, plastic credit card, complete with the magnetic stripe on the back and imprinted numbers and your name. It looks legit, and they only want $39 to activate your $7500 line of credit. Don’t do it! You will never see your $39 again, and you’ll never find them either!
Catalog credit lines are different from your typical line of credit. Some people recommend that you pursue a catalog credit account if you are looking to rebuild your credit or if you’ve never had credit and want to begin to build it.
Be aware that there may be some pitfalls on any offer of credit. Always fully understand what you agree to in any credit offer and read all the documentation.
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