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Capitol One Card - Is the Capital One Card a Necessary Risk?

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The Capital One card is marketed to young adults, particularly men in college. Though it provides a necessary service, it is a high-risk card which some consider unethical due to its tendency to be a first step to bad credit.

Capital One’s elephantine advertising branch regularly funnels more money into selling Capitol One cards than rivals Visa or Mastercard. From the David Spade “No Hassle” campaign to “free” 2 liter bottles of Pepsi at Wal-Mart, Capital One shouts at the top of its lungs to make itself heard, especially by first-time credit card owners.

Recently, the Credit CARD Act (Card Accountability Responsibility and Disclosure) has placed severe limitations to help protect young consumers from Capital One-styled advertising. Marketing campaigns are now forbidden from operating on campus or during campus-related events, and borrowers under 21 must now get a co-signer for their first credit card.

These measures represent a multilateral American treatment for it bad credit epidemic. For credit providers like Capital One, unhealthy credit is good for business—the late fees and annual charges generate steady income, while the resulting low credit scores make it unlikely that borrowers can get better deals elsewhere.

There are two schools of thought on Capital One’s heavy advertising. Defenders of the business claim that it is necessary and productive, while critics argue that the advertising is part of a scam which the government should outlaw.

With its niche of providing to first-time borrowers, Capital One can defensibly argue that it’s only natural for first-time borrowers to struggle. The additional capital generated by bad borrowing allows the company to provide better service to its clients. Bulky advertising, it claims, is necessary to reach young adults for whom finance is the last thing on their minds.

In crediting borrowers with limited or no credit history, Capital One cards offer some of the highest APRs, late fees, and surcharges anywhere. After the expected 0% APR in the first year, it shoots up to a staggering 19.8% or higher. Compared to Visa and MasterCard, a Capital One card’s APR picks up where other cards leave off. For responsible borrowers, however, this may not be a problem.

Responsible borrowers (read: borrowers whose parents or teachers have taught them how to handle a credit card) have no trouble with the high APR of a credit card. Those who keep their spending under control and their payments regular do not lose much money in the exchange, and reward systems are often generous enough to more than make up for the interest generated by two-digits of debt.

The more lethal hazard of a Capital One is its annual fee. The “No Hassle” and “Classic Platinum” cards—both marketed heavily to first time credit-users—charge a $39 annual fee. Furthermore, the fee cannot be stopped until the account is closed, and the account will not close until it is paid off. In this way, the Capital One card chains struggling borrowers to its product.

Critics of Capital One and the Capital One card argue that it has created a cycle of exploitation that fails at providing a worthwhile service. First, massive advertising campaigns lure in vulnerable borrowers who then build up large amounts of debt in what is, for many of them, their first time away from home. Cripplingly high fees and interest rates go untreated as these first-time borrowers live beyond their means away from home and ignore their inefficient borrowing. As these cash trees ripen, the money is reinvested into advertising so that a new batch of consumers can be exploited.

Despite these criticisms, the Capital One card remains one of the few options available to those with limited or no credit history. If someone you know owns or is considering a Capitol One card, be certain that they understand that it is a short-term card which should be replaced as soon as a fair credit history has been secured.

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