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Archive for Sunday, May 10, 2009

Credit ‘rights’

Credit should be less available to those who haven’t shown they can use it responsibly.

May 10, 2009

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American citizens have many important rights but the “right” to buy things on credit and pay for them later is not one of them.

One of the criticisms of the “Credit Cardholders’ Bill of Rights” recently passed by the U.S. House is that it could restrict some people’s access to credit. Why is that is a bad thing? Some people obviously can’t handle credit.

The ability to access credit shouldn’t be a given. It should be a privilege based on a person’s record of being able to responsibly manage that credit. When credit cards first became popular, their use was largely a matter of convenience. It was easier to pay for some goods and services with credit cards than with a check or cash.

Credit cards were more readily accepted than checks and more convenient than cash. People didn’t have to carry as much cash, especially when they were traveling, and if they encountered an emergency situation, a credit card could come in handy. The idea, however, was to use the card for convenience and pay for your purchases at the end of the month. It was not to use credit to buy things you didn’t know when you would be able to pay for.

Clearly, there are many people today who would have been far better off if they’d never been given access to credit. Raised in a society focused on material consumption, it was too easy for people to charge purchases they couldn’t really afford to make, and companies that reaped huge interest payments on credit card balances did little to discourage the practice.

Michelle Singletary, who writes a finance column carried by the Journal-World, noted last week that the credit “Bill of Rights,” while well-intentioned, included many loopholes that would continue to allow people to get trapped in credit card debt. There has been plenty of talk about credit “transparency,” but Singletary had a better idea.

Her plan, which she called “point of sale transparency,” would require credit card holders preparing to make a purchase to read a statement spelling out how much they owed on their credit card and how long it would take them to pay it off if they made only the minimum payment. Such information might prompt at least a few people to rethink their purchase.

Credit card companies have made access to credit easy because they make money from those who are least responsible in using credit. That should change. Rather than a “right” extended to anyone, credit should be a “privilege” available to people who have a reasonable expectation of using it responsibly.

Comments

Steve Jacob 5 years, 8 months ago

KU for sure makes a ton of money from letting the credit card companies have free access on campus. Heck, you see Bill Self holding a card of billboards now.

mom_of_three 5 years, 8 months ago

The problem is credit card companies raising rates and lowering limits on those who have been responsible. That is due to the amount of people defaulting. Unfortunately, it's not always the ones you think will default, so there is no way creditcard companies could foresee what can happen.

LiberalDude 5 years, 8 months ago

I agree with mom_of_three. We need legislation to stop credit card companies from taking advantage of their customers. They raise rates for no reason without warning. They put all sorts of writing in fine print to the point that you need a lawyer to figure out what you are agreeing to.

We definitely need some legislation to regulate the credit companies.

gl0ck0wn3r 5 years, 8 months ago

"LiberalDude (Anonymous) says… I agree with mom_of_three. We need legislation to stop credit card companies from taking advantage of their customers. They raise rates for no reason without warning. They put all sorts of writing in fine print to the point that you need a lawyer to figure out what you are agreeing to."

If you need a lawyer then either don't get a credit card or get a lawyer. The companies are not taking advantage of you - they are making unsecured, high-risk loans and are in the business of making money. If you dislike the terms of service, cancel the card. My interest rate has never changed. Why? I don't carry a balance - ever. Pretty simple.

Kirk Larson 5 years, 8 months ago

The best plan is cut up your credit card! After I got rid of my last card, I just save my money if I want something. It's amazing how easy it is. The one problem was when I applied for my mortgage. The were concerned about my recent lack of "credit history". I had to convince the bank that it was a good thing; that I didn't buy stuff I didn't need and that I could discipline my saving. In the end they agreed. Credit should just be for big ticket items: car, home, major appliances. Otherwise, set goals and save.

meggers 5 years, 8 months ago

The problem is that the credit reporting agencies give you a lousy score if you're responsible enough not to use a credit card, even if you pay your bank loans, mortgage, etc. on time. They create an incentive for indebtedness and punish those who choose to live within their means.

bad_dog 5 years, 8 months ago

"The idea, however, was to use the card for convenience and pay for your purchases at the end of the month. It was not to use credit to buy things you didn’t know when you would be able to pay for."-LJW editorial writer

Yeah, I guess that's why my cards have credit lines in excess of 10K and have for more than 20 years. That probably also explains why I continue to get more offers in the mail, some from companies where I already have established accounts. How visionary of them to recognize my needs for convenience...

jafs 5 years, 8 months ago

My wife and I have two credit cards (one each).

We have excellent credit, and have been paying off our cards over time, which were used mostly for some home remodeling expenses which we didn't recover when we sold our home.

Recently, both cards announced an increase in rates, which we could decline, but then the accounts would be "frozen", meaning we couldn't use the cards anymore at the current rates.

This certainly seems like punishing good, responsible customers with excellent credit to me.

Kawatchi 5 years, 8 months ago

My personal beef with the credit card companies is their ability to change the rules on the fly. Try sending them a letter saying "Due to some internal changes, I will be lowering my interest rate to 2%." Once they enter into an agreement with you, they should have to stand by it unless both parties agree to alter the terms.

jafs 5 years, 8 months ago

The current legislation that is being considered in Congress will likely take that ability away from them, Kawatchi.

Unfortunately, right now when you sign up for a credit card, you are in fact "agreeing" to their right to change the rates.

I'm not saying it's right.

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