If you don’t want to use (or can’t use) a credit card, then don’t.
Place your money into a bank or credit union and use their debit card. Despite what you may hear, not all banks charge debit card fees. Find a bank or credit union that doesn’t charge you money each month to hold (and provide access to) your money.
If you are unable to get a bank or credit union account for whatever reason, then wait until you can. If you must get some form of card, then you may want to consider a prepaid card. This should really be seen as a last resort. If you need to get a prepaid card realize that you are more than likely going to pay some service fees.
Right now there are two prepaid cards on the market that I’m aware of that give you the ability to avoid all fees by jumping through a few hoops (i.e. minimum balance, direct deposit, etc.). The rest of the cards in this market are pretty bad in the sense that they are marketed as a long-term solution and that you are paying a bunch of fees to access your own money.
Russell Simmons has a card. It’s bad. The Kardashians created a “kard” in this market. It was bad too. So bad, that it was run out of town. Who’s up for another celebrity-branded prepaid card? This time it’s not just a celebrity. It’s the self-proclaimed “Most Trusted Personal Finance Expert” in America today, Suze Orman. She just released The Approved Card. I like Suze, but I don’t like that she has created this card and is marketing it in this way.
Me? Ignorant of the big picture? Let's have a look.
Here’s why, after seeing last night’s Nightline where Suze preaches about getting rid of holiday debt, of all things, that I can’t believe Suze is pushing this card:
1. The card comes with a $3 monthly fee, or $36 a year, plus a bunch of other possible fees depending on how you use it. That’s very close to the $5 per month fee that Bank of America backed off on. And with Bank of America at least you get a bank, with checks and tellers, and loads of ATMs.
At best this card is on-par with the Upside Visa prepaid card. Why not create a truly no-fee prepaid card? Why would Suze create this versus just partnering with someone like PerkStreet, a card that is truly helping consumers get out of debt and get rewards for spending? Ironically, Bancorp is backing both deals.
2. The card is marketed as an “easier, smarter way to be debt free”. As opposed to what? Cash? It’s certainly not easier or smarter than a no-fee bank debit card.
3. The credit project is dead on arrival. Your activity on this card will be anonymously reported to one of the credit bureaus (TransUnion), in hopes that they will one day consider it for inclusion in your credit report. This will never happen. Debit or prepaid spending has absolutely nothing to do with credit and your ability to be viewed as credit-worthy.
By definition, debit and prepaid spending should not be on your credit report. Anyone who thinks otherwise is living in la la land. But does that stop Suze from using the credit project thing as a selling point? Nope. In her interview with Huffington Post, she says,
“Middle-class Americans…don’t want a credit card in their wallet because don’t want ability to get themselves into trouble again,” she said. “The problem with that is if you spend money on debit or cash, it doesn’t report to the credit bureaus so it doesn’t give you a FICO score.” “I wanted to create (a scenario) where people who pay with debit and cash are rewarded…”
This card will not help your credit score or report. Don’t take my word for it. In this interview with Fox Business, Jon Ulzheimer points out that the fine print from the Approved Card site:
“The information we share with TransUnion concerning your Approved Card account will not appear in your credit report.”
In summary, the Approved Card is just another prepaid debit card, not a financial product that should be marketed as a “revolution” or a “movement”. If you want to use one for a month or so while you wait to get a bank account, that’s cool. If you want to give one to your kid while he/she is in college, that’s probably a smart move. But this isn’t a smart, long-term solution for the “middle-class” or even the un-banked.
The smart, long-term solution is to get consumers involved with a responsible bank or credit union and then gradually introduce real credit if you want to build a healthy credit score. Suze should have done what Dave Ramsey has done and partnered with a real bank (in an ad deal). Instead, she created her own prepaid card product and is marketing it to the masses, instead of who it should be aimed at: the un-banked looking for a short-term solution.
Here’s two more takes on the card that go a bit easier:
- Suze Orman to Offer Her Own Prepaid Debit Card by Ron at the NY Times
- Suze Orman Goes Prepaid by Felix Salmon (on second though…)
What do you think? Is the Approved Card a good financial product for the middle class? Should Suze get a pass where Kim Kardashian did not?
Related Posts:
- An Update on the Suze Orman Prepaid Debit Card Fiasco
- Are Prepaid Cards Safe? The Truth About Prepaid Card Protections
- American Express Prepaid Card – Swing and a Miss
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Debit or prepaid spending can tell lenders a lot about your spending patterns, which can give lenders a better idea of your credit risk.
Some credit card issues view certain types of spending (e.g. liquor stores, strip clubs, casinos) negatively and this does affect the limits and terms extended to these spenders.
Such a person could "fool" their credit card issuer by making only "good" purchases on their credit card, while putting all "dubious" purchases on a separately-issued debit card.
I think credit card issuers would dispute the claim that debit or prepaid spending "has absolutely nothing to do with credit and your ability to be viewed as credit-worthy."
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