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The Matrix Credit Card: Not the Best Choice for Building Credit

July 14, 2012
Credit Cards
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Haunted by the ghost of bad credit, Average Joe looks to the web for an answer to a predicament that casts a shadow over him and millions of others across the nation. A quick search brings up the Matrix credit card website, immediately opening to an application. He skims the site and decides against the flashy “no application fee” ploy he’s seen so many times before.

Upon closing the window, a picture of “Tina,” a smiley Matrix card representative in a pop-up chat window, stops him. “Hi, I have a few questions,” he types out of curiosity. An immediate response appears with a blazing “APPLY NOW” link nestled between seemingly innocuous card details. “Hi, I wanted to know if…” Another rush of card details even before he finishes.

The Matrix Credit Card is not only another trap for those suffering from bad credit, but also just down right creepy. If you’re like Average Joe here and are looking for a way to rebuild your credit, steer clear of the Matrix Credit Card.

A feigned friendly face

The Continental Finance Company has really outdone itself with this card. Claiming to cater to “consumers who are largely overlooked by traditional credit card issuers and banks,” CFC did its homework and figured out exactly how to trick those who need the most help.

The Matrix card comes in a secured and unsecured version – both with an initial $300 credit limit. The only difference between the two is the required upfront security deposit for the secured version. Otherwise, both have a variable 29.99% APR for purchases and cash advances (effective at the time of the cash advance transaction), and a mountain of fees that are masterfully constructed and just as unforgiving.

They advertise no application fee and working within the Discover card market. The latter isn’t much to brag about – Discover cards are hardly accepted around the US, let alone internationally. And the promise of no application fees stops there.

A fee frenzy

The Credit CARD Act of 2009 set forth restrictions to protect cardholders, and decided that issuers are only allowed to charge up to 25% of the credit limit in fees during the first 12 months. The makers of the Matrix Credit Card were well aware of the hurdles and made sure to bound right on cue. That’s why the Matrix card has a $75 annual fee attached to its fixed $300 credit limit, effectively shrinking that to $225. Tricky, Matrix, but you aren’t fooling us.

The Matrix card makes sure to celebrate your anniversary as a cardholder with a mess of fees you wouldn’t wish upon your worst enemy. As soon as the 12-month CARD Act protection expires, these fees are immediately effective:

  • Monthly maintenance fee of $12 per month (on top of your annual fee)
  • Cash advance fees of $5 or 5% of each transaction
  • 3% foreign transaction fee
  • $25 late payment fee each billing cycle, turning into $35 if you’ve missed 6 cycles
  • $35 returned payment fee
  • Credit limit increase fee of $30 for every $100 increase
  • $30 one-time fee per additional user on the card
  • $4.95/month fee for paper statements (online banking is free, but make sure to manually opt out of paper statements to avoid fees)

And if you find a mistake on your statement, you have to file your complaint by mail and wait up to 90 days, during which you’ll still be charged interest. Hopefully your claim is valid because if they didn’t make a mistake, you’ll be charged the full amount including interest and any applicable delinquent fees.

Is the Matrix all there is?

Many of the cards whose fees and interest rates we find exorbitant cater to those with poor or no credit. Issuers often say that their fees and APRs are justified because, well, who else is going to lend to these people? This is just accurately pricing in credit risk. We didn’t think this was necessarily the case – those with bad credit can still find, if not cheap, then decently priced options.

Credit unions, not-for-profit and member-owned financial institutions, are known both for their affordable products and their willingness to make lending decisions based on a holistic view rather than a snap judgment of credit scores. We recommend that anyone with less-than-stellar credit who’s considering the Matrix evaluate their credit union options first.

“I can say emphatically that any consumer looking for credit should shop around, and most importantly, they ought to include at least one credit union in those shopping plans,” says Mike Schenk, VP of Economics and Statistics at the Credit Union National Association (CUNA). Schenk noted that:

  • As not-for-profit cooperatives, credit unions aren’t beholden to shareholders. Instead, they return their profits to their members in the form of lower interest rates and better yields.
  • Credit unions aren’t trying to convince borrowers to take out loans they shouldn’t be getting. They don’t have any incentive to make unsafe or usurious loans.
  • According to Schenk, a consumer with a $5,000 average credit card balance balance will save roughly $130 per year by using a credit union.
  • Credit unions are, on average, about 15 times smaller than big banks, and have the desire and capacity to evaluate borrowers’ personal circumstances when making credit decisions.

Alternative Solutions

Luckily, the Matrix isn’t your only way out of the dark. Greg Meyer of Meriwest Credit Union offered a solution for subprime borrowers: secured share loans. These loans are taken out against a credit union deposit, and require no credit check. The interest rate charged is usually around 3-4% now, and on-time payments are reported to credit bureaus. It’s like a secured credit card, minus the high fees and exorbitant interest rates.

“Everyone with severely bad credit has a story to tell of why or how they got to that point,” says Meyer. In this lending climate, some people can’t even qualify for secured credit cards from big-name banks like Capital One or Bank of America.

“If someone cannot get a secured card from Bank of America or Wells Fargo,” says Meyer, “then they have some very serious unpaid debt issues. We are not dealing with just a foreclosure or a couple of overdue credit cards or car loans. If someone cannot get a secured credit card, they have no business shopping for credit. When I meet with those sorts of borrowers I recommend they utilize Secured Share Loans to rebuild their credit standing.”

Words of warning

If you’ve been dissuaded from the Matrix card, there are still a few other products to look out for. Prepaid debit cards, for one, can come with just as many fees as the Matrix (if not more) and do absolutely nothing for your credit since you aren’t borrowing money. The Net First Platinum card is equally malicious, posing as a credit card, but is actually no more than a glorified gift card riddled with fees, and can be used only on the Horizon Outlet website.

Overall, just be careful of what’s out there. Issuers know your weaknesses and take no mercy on those of us looking for a little help. Watch out for offers that are too good to be true because, generally, they are. Remember that credit unions are not-for-profit, and are far more likely to have your best interests at heart.