I know someone who doesn’t appear to have the best credit rating, but I have some level of trust for them.
It looks like they can get a credit card from the “subprime” market and pay obscene fees.
I was thinking about this - is it possible for me somehow to “underwrite” a credit card for them, where I put up my own money, decide what their credit limit is, get a cut of their fees or interest payments (some I assume would go to the processing bank since I can’t issue a Visa or a Mastercard in my own name as far as I am aware), and that gets actually reported to the credit reporting agencies?
E.g.
“I called Bank of America, and they’re ok with me giving you a credit card. The card will be processed through Bank of America, but I set the interest rate, which is going to be 10%, with a $20 fee for a late payment.”
I know that I could just write them a check and tell them to use that to make a deposit for a secured card, but that doesn’t give me any of their interest payments or let me make any further decisions.
Basically, yes, this is the idea. If I decided to set the credit limit at $5000, I would put up $5000 of my own money (quite possibly by leaving it in the care of the bank that did the day-to-day processing). I would then tell the processing bank, “hey, the interest is 10% APR, and please charge $20 for each late payment or overlimit incident.” The processing bank could respond, “We will charge you 30% of all interest and fees collected as our fee for processing your private credit card.” Since it’s my money, I would expect to get a portion of the fees and interest collected and I would have the right to adjust the credit rating based on history of payment.
Since I’m risking my own money, not the bank’s, the bank shouldn’t care much about the credit rating of the person getting the card.
Isn’t this something indulgent parents do for their kids all the time? My card keeps asking me if I want additional cards on my cc account.
I assume what you are asking is whether you can have it in their name, but you co-sign? Thus helping them rebuild their credit rating, rather than simply giving them a secondary card on your account so they can pay for gas and meals… I would assume if you cosign, you could get the card on the bank’s terms.
Of course, they may not tailor it to your precise requirements. Cards are notorious (or used to be) for allowing passable clients to exceed their limit or even raising their limit with or without permission. They could raise the limit on his say-so if it’s his name on the card. I hope the other guy’s problem was something like unemployment or medical debt, not that he could not count or control his impulses. Otherwise, you may find yourself on the hook for a lot more than the basic $5,000.
That’s probably the way to go but it sounds like he is asking if he can himself become a card issuer, set the terms, bear the risk, take the profit, and let the bank service the account for a cut.
No, you can open a secured card for them if they don’t have the money for one or add them as an authorized user to your account but the issuing bank will make all the money.
There are simpler ways to effect this type of investment with all the various micro-loan and lending club investment pools out there. Being a CC issuer and underwriter would seem to be about the most complex and expensive way for an individual to go about doing this.
Credit cards are convenient, but they have huge overhead costs, and are by no means the most efficient way for an individual investor to loan to someone and make money on the deal.
Heh - I was actually thinking just this same sort of thing (using something like lending club). Have him apply for a secured card, and secure it by applying for a loan from Lending Club. Find out his loan number, and fully fund it yourself. You’d get the monthly repayments plus interest, minus the LC fees, so you’d profit.
It wouldn’t quite work like the OP was thinking, however. The borrower would have to make payments to Lending Club at the same time he was using the secured card for purchases etc. So it would be easy for him to get into trouble, default on the Lending Club loan, and leave you with limited recourse to collect on the loan.
I wonder if it would be possible to bring the secured-card bank into the picture somehow by having a lien of sorts against the security. If the friend closes the credit card account and pays off the card balance, the bank would normally give him back the security value. What I’m thinking is that the bank couldn’t refund the money to the friend, without the OP’s signoff. Which the OP would do - as long as the Lending Club loan was paid off.
I have no idea whether any bank would add that layer of complexity to a secured card, however.