She should have stopped after her first sentence. If no one carried debt on their credit-cards, the problem would be solved.

Nonetheless, the credit-card companies are an excellent example of what a monopoly can get away with. The hidden fees and rapacious interest rates are beyond reason. And the incredible lack of security and massive fraud as well.

But they don't need to change, because MasterCard and Visa together ominate the market. They do not compete against each other, because the same banks own both of them. But they apparently put on a good-enough show of "pretend" competition to keep the regulators off of their necks.

They first thing that is missing before the free will coment in the article is that credit well is .... credit. So many people do not udnerstand the simple idea of it is money you DO NOT HAVE! IT is money YOU OWE. Some people get in a bit. BUT very very few UNDERSTAND it completely.

Yes you can rail against the credit card companies for their interest rates and even their shady practices as you can see on the consumerist.com but in the end it is not the companies fault you spent money you did not have.

Hmm. These people that get into credit trouble are like those poor monkeys a million years ago saw the apple with out seeing the snake on the branch and bang one fat snake. So now we have monetary darwinism. Survival now does not mean being able to kill a wildbeast but now who can delay gratification and say I will that HDTV plasma screen later.

Credit cards are pushed on young people who have no idea how to manage money. My son was typical in thinking that he could live off a bank loan when he went to university. If something drops on the door mat offering you 5 grand for what appears to be nothing, plenty naive people will take up the offer.

I don't think credit card companies should be allowed to take on people who have no steady income to pay off the card. All that happens is that someone - the victim or their parents - ends up paying off a huge card debt which was incurred through ignorance, and which is completely out of proportion to the benefit of the credit in the first place. That imbalance makes it verging on fraud in my opinion. It does no good to anyone except the bankers. Nothing of value is created. Wealth is simply moved around.

"So now we have monetary darwinism."

Or at least we did until the bailouts began. Now it's free housing (too many foreclosures) and paying off your debt for pennies on the dollar.

Some of this discussion goes over my head because I've never owned a credit card. So there's contract stuff that's a little mysterious to me.
Yes, that's right: I'm middle-aged and have never owned a credit card. (It's *amazing* how hostile people get when you make that admission nowadays.) A few years ago my bank forced everyone to accept debit cards for their accounts, so I have one of those, but that's as close as I've ever gotten.
I just never felt I had the income to support a credit card.
About 10 years ago I got an unsolicited call from a rep at my bank. She started going on and on about how they were offering this new credit card and I really needed one. (The reason she gave that sticks out in my mind: "What if you lose your purse? You need another card to use until you replace what you lost!") After about 5 minutes of this I finally managed to break in and say that I wasn't worried about losing my purse, because I didn't own a credit card anyway, and didn't want one.
There was a small pause.
"How WEIRD!" she hissed, and hung up.

I should have seen this coming then.

"I don't think credit card companies should be allowed to take on people who have no steady income to pay off the card."

Solution 1. Stop handing them free money and they won't be hounding every pennyless student around.

Solution 2. Let people learn their lessons. I think your son has learned a valuation life lesson, has he not?

Solution 3. End the cartel. Credit card companies gouge because they have been handed a cartel by the government. There is no competition. These regulations need to be scrapped.

You are right that nothing of value is created. That's what happens, though, when a central authority hands a fistfull of cash to banks. They lend it out, create inflationary bubbles, bankrupt themselves, and then turn to taxpayers for bailouts. Of course the central banks that created the problem in the first place then hands them more money to first plug the hole and then start the whole ridiculous cycle over again. Unfortunately, this leads to more inflation, where you, the taxpayer, will eventually get screwed (taxed) with more inflation and future bailouts.

The fundamental problem is that a bunch of people make bad financial decisions. Ultimately you can't force people to be smart. If young people can't handle money, it's not the credit card companies' fault.

It's good to encourage competition and prohibit deception, but we shouldn't try to prohibit stupidity because people sometimes legitimately disagree about what constitutes a bad decision.

>>Ultimately you can't force people to be smart. If young people can't handle money, it's not the credit card companies' fault.

Of course you're right, Pseudonym. As is Amy.

As parents, though, you can feel a bit battered standing sentry in front of the barrage of credit card advertising targeting your teen.

The cc companies know exactly how to appeal to the self-serving naivety of the confident but penniless young!

Credit is exactly as you said: to pay for things when you don't have the cash.

OR

To 1) build credit 2) earn rewards responsibly. My fiance, D, pays for EVERYTHING with his cards. Then he pays off the full balance and reaps the rewards.

I only started using it to build credit and for the safey of using it over my debit. I use it when I shop online and buy gas (gas stations can put a hold on like, $150 of funds in your checking account if you buy gas w/ a debit card, even if you only end up putting $30 into the tank). Aside from a few rough months I always pay it down right away, before I even get the bill.

Here is a problem that happens to fiscally responsible peeps:

Say I have a $2000 limit, and have $800 on the card. Perfectly okay, right? The bill isn't due so my balance sits there for a week until I get paid. Then, Evil Credit Co. X decides to lower my limit to $500. Now I've exceeded my credit card's limit by $300. Now I'm this Evil Overspender X and they basically give me the middle finger by increasing my finance charge by 15%. And the FEES! Ohhh the fees will absolutely rape you anally.

Yes. They can do that. And yes. It happens.

My son was typical in thinking that he could live off a bank loan when he went to university.

Norman, not to be mean, but my dad always told me not to buy what I can't pay for. He told me he waited to buy a house until he had saved enough money to pay for it in full.

I use a credit card to pay for everything, NEVER a debit card (unsafe -- identity-theft-wise), and I pay it in full every month.

I use my credit card for everything and pay it off every month. I get the protection if the card is lost or stolen and I have a number of recurring charges on my card every month, so I never have to worry about paying the car insurance or the newspaper.

My problem is that they keep raising my limit. I spend $600-$1200 on my card monthly except for one time each fall when I pay for my winter vacation. I have never owed more that $7000 on the card, but my limit was $15000. A couple of years ago, I noticed my limit was $21000 and now it is $25000.

Does someone look at this and say, "He's only $14000 below his limit. Better bump it up."

I never applied for any type of credit while I was in college. I'm assuming they still do the thing where you get free goodies (a t-shirt, a cap, a cheap football) if you fill out an application... they hang out in the main part of college campuses and try to engage the students who are coming and going. My parents taught me about financial responsibility, though... how to budget, how to balance a checkbook, etc. I recall that they also taught household budgeting in Home Ec in highschool, too.

On what Gretchen said... yes, they do that. They did that to my husband (his credit's not as good as mine). He was well within his limit, and we got a notice stating that they were lowering his limit by several hundred dollars, which would've taken him over the limit. (I just paid the balance off, so it wasn't a problem. Then the card went into the shredder.)

I have three credit cards, but only use one. Actually, I shredded one that raised my interest rate, and the other one stays in the safe. The one I actually use is through my credit union, and I can pay the balance staight out of my bank account online or over the phone. It only has a $500 limit, so if anyone ever gets ahold of it, they can't go crazy. I use it any time I order something online, and for anything that is auto-billed, for security reasons.

ahw: be careful when it comes to shredding your cards (if by shred you mean the account is open, but you physically cannot charge anything b/c the card is destroyed then ignore this. If you canceled the account, too, then you might like this info.). Be weary of canceling account as it f's your credit score:

1) It reduces your overall available credit limit, thereby reducing your debt-to-credit ratio. This ratio is vital when applying for anything like a mortgage or car loan. Ideal is to keep it at 10%.

2) It shortens your credit history. This isn't necessarily true if you've had cards for years, and the one you shred is only a few months old. But if you're like my mom, she has a Sears card older than I am from when they built their house. If she were to shred it that effectively reduces her credit history, as if it didn't exist. Those years of buying appliances and paying it off immediately = worthless.

Just some stuff to consider. You're better off keeping the card and using it once a month (they'll sometimes cancel accts. that aren't used, which would conjure up the two curses above) for something dumb that costs $1 and paying it off immediately. It hurts you more than the company to cancel the account or have it canceled on you.

Rotten bastids.

I know, and I didn't cancel the accounts. (I used to work for a mortgage broker, so I know a quite a bit about how this all works.) I just don't use the cards. Once the cards expire and they send me a new one, I might try to get the rates reduced. Husband has one that I'd love to cancel... it was one of the first cards he got, and it charges a monthly fee, so that's the only charges that are ever on it, but I can't cancel it because it's his longest running line of credit. It's a pain in the ass, to write a check for $6 a month.

What sucks monkey nuts about this is that your credit score is used for so much stuff these days that having shitty credit affects more than just getting additional credit. For years I had such good credit I could walk into about anyplace and crap on the front desk and walk out with loans, credit cards, etc. Then I got married, and well the regulars here have heard me whine incessantly about that.

Credit rating can affect insurance rates (car, home, health, life), jobs, in addition to the pain in the ass of renting, borrowing for large purchases (homes, cars, etc). It will affect your ability to get a work visa for overseas from some countries. I wouldn't be surprised if hookers and your friendly neighborhood drug dealer were checking your credit as well. Not that I would know.

I think we've determined on this blog that people are generally stupid, and most are ignorant (self included especially in the past) about what the banks do to you with credit. And I think it sucks how the banks exploit the uneducated to their advantage. And fighting them is almost pointless. I did legal stuff to get debt off my report that was legally not mine, court papers to prove it, and some of these companies (May Company, Neiman Marcus, Talbots to be specific) still charged off thousands of dollars and fucking 1099'd me. It's like Andrew Jackson and the Bank Wars, or Amy Alkon and the Skank/Bank of America Wars. Nobody gives a shit, nor will they help you. Then you go to the trouble and expense of fighting it, and they ignore you. Finally, at least in my case, you give up, move on, and wait for Karma to take it's course. Or go get revenge if it makes you sleep better at night (to be discussed after statute's of limitations have expired).

I'd just say listen to the experiences of others out there, because it (these crap maggots trying to swindle your $$) will happen to everyone sooner or later.

I love the teaser rates. You can buy CDs giving 3% interest with a 0% credit card. 3% of $10,000 is only $300 but $300 risk-free on zero dollars is a nice return.

I had a credit card that offered 0% for the first year. I paid it off after 11 months. Then they rewarded me for being such a good customer by offering me 0% on a balance transfer for a year. I got a 2 year, no interest loan.

And they say there is no such thing as a free lunch.

"He told me he waited to buy a house until he had saved enough money to pay for it in full"

Not to be mean, but that is not necessarily good advice or practice in this day and age. I bought my first home on my own at 25, sold it for $15k profit, bought my second with a partner, sold my half for $10k profit and now own my 3rd on my own. I buy what I can afford not only on my current salary and what I could afford if I made $10k less per year (I am a consultant and may not always have great pay). I also have put aside money to live for 2 years in case I can't find work. If you wait until you can pay cash for a house - you will probably never own one. Owning property is a good financial decision, IF YOU CAN. Taking advantage of credit is not bad when you know how to use it properly and make sound financial decisions.

He told me he waited to buy a house until he had saved enough money to pay for it in full

Steamer -- I used to have the same problem, they'd up my credit on a regular basis and I kept calling to have it lowered again. Interesting, now that we have our mortgage paid off, they've stopped doing it. Your assets seem relatively meaningless when applying for credit...somehow you're a better risk the more (in good-standing) debts you carry??? Credit ratings are strange that way.

Amy - "Norman, not to be mean, but my dad always told me not to buy what I can't pay for."

You're not being mean, but you don't have the details.

Son was young, headstrong, unable to resist wanting it now, and the banks were slick at advertising. He was a sucker, and they took him in. What is it you call the late teens and early 20s - the idiot years? We bailed him out more than once. It wasn't until I started a monthly finance meeting with him that he finally got things under control.

I *could* have left him to learn his lesson, but consider. He was a few thousand pounds in debt - not a lot - but it was all he could do to pay the interest. As a student he was not qualified for anything other than waiting at table or serving in a bar; so even if he gave up his studies to pay back the loan it would have taken years. Literally - we worked it out. He was at the top of a slippery financial slope. It would have been very easy for him to push that debt to a level he could not pay, and then he would be on the slide to tens of thousands of pounds of debt. That's enough to ruin someone's life. How hard do you want to hit someone to teach them a lesson?

He has learned: he understands that credit is not free, that by saving up you pay less, and he is now managing a mortgage successfully. His main question now is where to get the best return on his savings. If it cost me a few thousand and him some sleepless nights, it was well worth it. It also meant a lot less profit for the bastards who pushed the credit in the first place.

... where to get the best return on his savings

Answer: over pay your mortgage. Highest rates, tax free, you can get it back but not too easily.

Good for you, Lynne. Gretchen, I am totally the shredder that you are talking about. I hope that I am not totally f'ed if I ever go back to the US.

I came to France and paid off 45 grand in loans, 15 for the credit cards. I was told to get credit cards to improve my credit trustworthiness. Some of them were great, others, total scammers. Like I loved how I bought a computer on a Circuit City card to get the 10% discount, and getting fined up the ass because their stupid website could not manage to accept my bank transfers properly. What a bunch of shit that was.

So, with my credit rating destroyed and all cards shredded, I am now having coverstations like this with my banker: So why can't I spend 500 bucks in one day, even if I have the money in the bank?

Banker: Because if anyone stole your card, you would be crying to us, and we don't want to deal with it.

Can you imagine? I am being told not to spend my own money, while you guys are getting given credit. Well, winds up in the same greedy hands anyway.

I'd say Norman's story illustrates the importance of educating your kids about credit at a young age.

But "not allowing" banks to issue credit to people? Good luck with that - we used to have that situation in the USA. Banks were allowed to give credit to whoever they wanted, but if they'd taken on bad risks they would have ended up going out of business. So they didn't usually lend money to people who were unable to pay, and no laws were required. But then we had noisy groups like Acorn, *complaining* because credit wasn't being given to people who couldn't afford it, crying racism of all the damn things. But the banks said, 'Hey wait, we will go out of business if we give credit to people who can't afford it!' So the government flooded them with money, and they gave credit to anyone who wanted it, and when they went bankrupt, they were bailed out.

Don't go down that road of passing laws to dictate who can get credit and who can't. Keep the government out of it altogether, and everyone ends up better off.

A buddy of mine used to work for a major financial institution (the bank with the horses and wagon) in the Financial subsidiary. He was an account manager, where they'd have clients like furniture and electronics stores. If the customers of those stores purchased stuff on credit, they could do it through this bank. The store didn't have to offer its own financing program, and if it did, it would probably end up being administered through this bank anyway, based on its expertise and the relationship they had established.

I asked him, when people borrow a few hundred or thousand to purchase computers, furniture, or big-screen TVs (or freaking DVDs and video games for that matter), what did they get for credit terms? Well, it depended on the offer, but sometimes it could be a full year with no interest. (After a year, the interest rate skyrocketed, which was fully disclosed in the agreement.)

So I asked him how many people paid those loans off before paying those incredible interest rates? He said 90%. A full 90% of the people who got those loans had them paid off before they ever paid any interest. I was kind of surprised that it was so high.

Like the mortgage bubble, which let's not forget only really affected five states, I have a feeling this credit card bubble is going to follow the 90/10 rule. We're all going to be forced to suffer because of the reckless and foolish actions of a small portion of the population.

Pirate Jo - "I'd say Norman's story illustrates the importance of educating your kids about credit at a young age."

Indeed, and it is a story of less than perfect education, rescued from disaster at the last moment.

Oddly enough my daughter's behaviour is completely opposite. She's what we call "canny." Since she had much the same upbringing from the same parents at roughly the same time, I conclude that much of the difference between their stories is due to differences between the individuals, and much less than 100% is due to education - though one difference in their education is that daughter had the benefit of seeing her brother's behaviour and its consequences.

It was not the easiest of my parental trials, and I'm glad it is over!

My problem with credit is that it artificially inflates prices. People are willing to pay more when they have imaginary non-money available. Which is why housing prices are absurdly high... people were willing to take out larger loans and bid more on the same house.

I don't have a credit card, and don't want one. I have enough debt between my mortgage and my student loans. The last thing I need is to run up debt for something frivilous. My debit card allows me the convenience of not having to carry cash around.