If you are looking for a credit card to faster rebuild your credit, a catalog credit card can serve you well, provided you use it wisely. Since you can only use the card to buy the card issuer’s products from their catalog or online website, you won’t be able to use the card for general everyday purchases, or to make travel or car reservations.
As with any credit card, study the fine print carefully before you apply. In the case of these cards, it is even more important that you educate yourself on what you are getting and what the card can and cannot do. Here are some of the things to look for when considering a catalog credit card.
What products and services will be available to you? If you can, check out the website or catalog of the card issuer to see what you can purchase with your card and to make sure these are things you really need. As much as possible, compare the prices of the items with what you would typically pay in a regular store or website. If they require you to be a member to see the prices, it could be an indication that the items for sale are priced above typical market prices.
What will it cost you to get the card? Catalog cards mostly come with a one-time application fee, often around $150. Some of this may be refundable, if you cancel the card within a pre-specified time period. Study the terms carefully to see how much of a refund you are entitled to if you decide to cancel, and how long you have to cancel. Also check if there are any monthly maintenance fees or other fees associated with using the card.
Are there any hidden fees? Many catalog cards offer a slew of attractive additional services, such as unlimited access to your credit report, emergency road assistance, and prescription discounts. But remember, there is no such thing as a free lunch. Although it may sound like these services are included in card membership, you typically just get them free for 30 days. After that, you will pay a monthly fee for these services, often around $10 a month for services that give you free access to your credit report, and around another $20 a month for services like prescription discount or emergency road assistance.
In short, you could easily spend upwards of $30 a month for services you would otherwise not sign up for. That’s $360 per year, considerably more than the savings you are likely to accrue. You are often automatically enrolled in these services when you sign up for a catalog credit card, so read the fine print, and be sure to cancel any services you don’t want within the 30-day trial period.
What are the terms for getting the bonuses? Many cards feature attractive bonuses, such as a grocery coupon card, if you sign up for the card. Again, study the terms carefully to determine what the requirements are to get the bonus. In some cases, the issuer will require you to be enrolled for six months in an elite program for which you pay a monthly fee. A typical monthly elite member fee is around $20, or $120 over six months. This is a costly way to get grocery coupons, if the services featured as part of the elite membership are not something you really need.
How do you make the monthly card payments? For most catalog cards, when you submit the application for the card, you also authorize the card issuer to debit your bank account for the application fee and, each month, for the minimum monthly payment. If you always keep your checking account current and have enough money to pay for these charges, this should not be a problem, as long as you are aware that the charges are coming. If not, you could end up bouncing checks and paying costly NSF fees.
How often does the card report to the credit bureaus? Check the terms to see how often the card issuer reports your card activity to the credit bureaus. You want a card that reports monthly, preferably to all three credit bureaus, but at least to one. As long as you are regular with the monthly payments on your card, frequent reporting to the credit bureaus will help you to more quickly rebuild your credit rating.
What is the annual fee and APR? Most catalog cards have no recurring annual fee and charge no interest on purchases. But remember, you never get anything for free. Such favorable terms could be an indication that you pay a premium for the products available for purchase from the card issuer.
The Bottom Line
If you set clear goals, a catalog credit card can be an excellent tool for rebuilding your credit rating. Pay your dues on time and leave a small balance on the card, just enough to show up on your credit report. But be sure you have the financial discipline to use the card. If you get carried away and run up additional debt with card purchases you don’t really need, a catalog credit card will just undermine your financial situation further.