A reader writes:
If you haven't seen the Frontline program about the credit card industry, I highly recommend it. It has to be one of the most predatory industries in modern times – a sort of sanctioned loan-sharking. Do you know what they call customers who pay off their balances every month? Deadbeats. Financially responsible, prudent individuals who don't carry a month-to-month balance are deadbeats. Why? Because they don't make the CC companies any money in interest, fees, and any other miscellaneous rent-seeking they can dream up.
Do you know what happens to the credit scores of deadbeats? They stay low. Why? These are people who are demonstrating incredible financial responsibility – they pay their bills, for crying out loud. So why do they have lower credit scores than people who maintain a rotating balance? Because they are UNPROFITABLE.
The whole financial industry is coercive in that staying in perpetual debt – but just the right amount of debt – while making timely payments, is the only way to ensure good credit because it guarantees corporate profits. If you don't want to be caught in that trap and choose not to have credit cards (or even if you do have plastic but pay it off monthly), you are, in a sense, blacklisted from major loan opportunities like mortgages and auto loans – at least at favorable rates, and therein lies the coercion.
The CC industry has far, far too much power over people's entire financial history and financial health in spite of recent legislation. Consumers have nothing close to the lobbying power of the CC industry, and when even a global financial meltdown doesn't result in major pro-consumer legislation, it's clear it will never happen.
I'm not in any way, shape, or form trying to convince you or anyone else to get on plastic merry-go-round. Far from it. I wish I was in your position to some extent. Revolving debt is brutal. I just want to point out how fucked up the incentives are if the goal is getting people to live within their means and exercise personal, fiscal responsibility. The entire financial industry profits from keeping individuals in a state of perpetual debt.
I understood and supported (with nose tightly held) TARP, but part of me wishes the whole system imploded because things like this are too entrenched to be unwound without a catastrophe to force the hand.
Another:
The reader who wrote this:
I don't know how many credit cards I actually even have at this point, but I only use one of them really (the one with the best benefits), use it for everything I possibly can and pay it off IN FULL every month. No downside, all of the upside. And every year there are new deals on cards (recently there was a Chase card that gave you 50k Southwest points for signing up)"
… could have been me. I have probably a dozen cards, but use maybe two of them depending on which one has the best rewards. I even just applied for that Southwest Airlines card. But there IS a downside he didn't mention. Retailers who accept credit cards have to pay fees in order to do so. Fees that go to Visa, MC and Discover, fees that go to the issuing bank (Chase, Citi, etc), fees to rent the card readers, and more. From what I hear, they are pretty substantial. The businesses make up the fees by charging everyone higher prices (since it is illegal to change prices based on the form of payment).
If everyone used cash, prices for everything would go down. But since that's not going to happen, I'll keep earning some of those fees back with my rewards. (Wired had an interesting article on the subject about a year and a half ago.)
The Dish 