A recent report from the Consumer Financial Protection Bureau contained a couple of concerns and a big surprise. For me, anyway.

“The consumer credit card market” states that both the total amount of credit line and the average amount of card debt have gone up over the past few years. No surprise there, given our national preoccupation with spending.

Here’s what got my attention: More people are signing up for secured credit cards, which require cash deposits. The number of secured cards provided by mass market issuers was 7 percent higher in 2016 than in 2015.

Until fairly recently most financial institutions haven’t put a whole lot of oomph into marketing secured cards. That’s changing, the federal agency notes, as consumer groups and the media suggest these cards as a good way to build credit scores.

What’s in it for the banks? Loyalty.

 

In the past, consumers with low/no scores were “traditionally found risky (for banks) to serve.” The above-mentioned growth in secured cards is driven by deep subprime consumers or those without credit histories. About one-fourth of the general purpose card approvals for this group were for secured cards.

Secured cards have slim (or no) short-term profit margins for the issuers, according to the report. But that’s not the reason they do it.

 

Credit: The long game

 

“Consumers who graduate to an unsecured product may feel some degree of gratitude or loyalty to the issuer that facilitated their credit entry or credit score rehabilitation,” the report says.

“At that point, the issuer may be able to interest them in other products. Additionally, that issuer may have an advantage over competitors in terms of both quality and timeliness of information about those consumers.”

In other words: If you prove yourself credit-worthy, the issuers can not only graduate you to an unsecured card but also maybe sell you on a checking account, auto loan, mortgage or some investment planning. Financial institutions are thinking long-term gain rather than short-term profit.

Years ago I did an MSN Money article on how to take advantage of new-customer bonuses at banks and credit unions. A banking official told me that paying $75 to $150 to someone to open a free checking account might seem counterintuitive. But once they’ve got you in the building, they’ve probably got you for life.

“Bringing in a new customer is, over the long term, going to be profitable,” he said.

I’m glad financial institutions are starting to work with those who have no credit, or sketchy credit. Like it or not, the scoring system is how things work in this country. You’ll pay a lot more in interest over your lifetime should you need to finance a home or a vehicle. In addition, potential landlords and employers might be looking at that three-digit number.

 

Credit scoring: Ignore it at your peril

 

A smart consumer will learn to work within the system by using credit strategically: buying groceries or new shoes, say, and immediately sending a payment to the card company. You could put your utility bills on plastic and sign up for an alert that the card has been charged, and then send money to the issuer as soon as you know what you owe.

Once the money is out of your checking account, you can’t spend it on something else. In this way, using a card isn’t much different than writing a check for groceries (yes, people still do this) or a phone bill. Careful, smart use will build your score and make you available for better loans, should you need them one day. It might also convince a prospective boss that you’re a responsible person.

Done properly, you earn more than just a respectable credit score. I use rewards credit cards for just about all purchases (including home phone and Internet), and then cash in the points for gift cards to fund most of my birthday and holiday shopping. Some travel hackers score huge rewards by playing their cards right, so to speak.

Another way to take advantage of a rewards card is to trade the points for cash, which you could put toward a goal (vacation, a child’s college fund, a wedding gift) or even toward that month’s balance. Personally, I prefer the scrip because giving presents is important to me. Your mileage may vary.

I operate within the system mostly to keep my score healthy, but I see no reason not to take advantage of available benefits. This frugal hack doesn’t work, however, unless you make it an ironclad rule never to charge more than you can pay.

This rule is so simple, and so easily ignored. If you’ve got consumer debt, I have two suggestions. First, download credit expert Gerri Detweiler’s free book, “Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights.” Find it at GerriDetweiler.com, under the “credit resources” button.

Next, contact the National Foundation for Credit Counseling. Sometimes just speaking with a representative can help you unsnarl things; if not, the NFCC can connect you with a counselor in your area. This help is offered on a sliding scale, and might even be free.

Readers: Has your use of credit changed? Why or why not?

 

Related reading:

• Nearing retirement? Check your credit
• Credit score myths that will. not. die.
• What’s the weirdest thing you ever charged?