7 Reasons to Love & Hate Your Credit Card
Credit Cards. At times, it seems like we can’t live with them and we can’t live without them. It is a classic case of a love-hate relationship. We need the credit cards to help build our all-important credit history and subsidize our expenses when we just don’t have the cash. But people deeply resent the high interest rates and the traps lurking in the fine print.
On that note, let’s start with the negatives. By setting aside our emotions, we can identify and possibly avoid those disadvantages that cause us to hate our credit cards.
1. “YOU WANT ME TO PAY HOW MUCH IN INTEREST?!?!”
I have friends who’ve received credit card offers in the mail that have a starting interest rate of 35%. Even Shylock, the ruthless moneylender from Shakespeare’s Merchant of Venice, would think that was excessive. Never forget that credit card companies are a business not a charity. They exist to make money and their business model is based entirely upon the interest rates they charge. It has been reported that some internal communications from credit card companies sarcastically call customers who pay off their principal in short order as “deadbeats.” The longer the customer takes to pay off their credit card debt, the more interest they pay, the more money the company makes.
2. “DID YOU NOT READ THE FINE PRINT?”
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Ever notice that the bank’s credit card offers are in BIG BOLD letters. “GO ON VACATION,” “WRITE YOURSELF A CHECK,” “BUY A NEW WARDROBE,” and the like. You are so focused on the headlines that you don’t read the rest of the story. You may have to use an electron microscope to read it but at the bottom of the page are terms, conditions, restrictions and fees written in legal jargon that is all but incomprehensible to most people. Consumer advocate Elizabeth Warren colorfully refers to it as “word barf” and if you sign such an agreement, you may be giving the company license to raise your rate, charge you fees, sue you and perhaps take your first-born child.
3. “THIS ISN’T WHAT I PAID FOR”
You know those pre-approved credit offers you receive in the mail nearly everyday? Well, per reason # 2, the fine print often shows they are pre-approved in name only. The banks and credit card companies employ armies of lawyers and lobbyists to create loopholes that enable them to not give you the card you think you’re signing up for. The offer may say, “0% for six months, then 9.9% fixed, with no annual fee, and $5,000 credit limit.” Then you get the card and it’s “6.9% for 3 months, 29.99% variable, $50 annual fee and $400 credit limit.” Reading what you are signing and consulting reference materials to understand what you are agreeing to is the key to being “debt smart.”
4. “WHAT HAPPENED TO MY GREAT RATE?”
Credit cards and banks reserve the right to raise your rates for many reasons. One of my readers at DebtSmart.com told me that her bank raised her rate to 23% because she was late paying her bill. They are just waiting for any misstep and then, BAM, your best rate becomes your worst. After all, you agreed to it when you signed the contract with all that fine print.
5. “I CAN JUST DECLARE BANKRUPTCY AND SORT IT ALL OUT”
Here’s another good one. The banks have successfully lobbied Washington to change bankruptcy laws to make it more difficult to dissolve debts in bankruptcy. They want the consumer to be more responsible for repaying their debt! The banks want to have their cake and eat it, too. Who gave the consumer making $10,000 per year a $50,000 credit line? This is why the lobbyists pounce on even the most modest credit reform proposals.
5. “LIES AND DECEIT!”
You think you’ve done due diligence by reading the fine print and doing the math at your kitchen table. But months later, you get whacked with a penalty that you knew nothing about. You call the customer service line and the person at the call center pulls up your account and spits back jargon to imply that you’re an idiot with no common sense. Their company sends you credit offers that say, “you can use all your available credit” and when you do they charge you a penalty. Late fees, over limit fees, annual fees, service fees—they are always coming up with new ways to separate you from your money. And the fees always to seem to increase, never decrease. A $35 flat late fee. It does not cost the bank $35 when you are late. You may not have been late at all. The bank may have just credited your account late and charged you anyway. Banks make 47% of their revenue from fees! Don’t ever let a fee go. Call the bank and make them waive that fee, and if they don’t, punish them by taking your business elsewhere.
6. “YOU CAN’T STOP ME FROM GETTING A JOB OR HOME”
Yes, they can. If you have a problem with your credit card bank, they automatically report it on your credit history. Everyone looks at your credit history. Landlords review it to determine if they will rent to you, insurance companies look at it to decide what policy you will get and, in some cases, prospective employers use it to determine whether you will get the job you want.
What happens when the creditors make a clerical mistake that adversely impacts your credit report? A mistake that makes you appear terrible to potential employers and landlords? Not their problem. It’s your responsibility to find and correct their error.
7. “LET ME SPEAK TO YOUR SUPERVISOR”
People are busy going to work, shuttling their kids to and from school and doing household chores. We don’t always have time check in on our account or call the company if we have a question or concern. When we do, it takes forever to speak to a human. You have to navigate through a menu and key in your account information. Numbers, letters, symbols—all so that you can talk to one of their drones who start by asking you for all that information again. I typically get around this by hitting “0″ then the “#” keys. I get a reply, “We cannot recognize your account number so please be tortured again by reentering it now.” I keep hitting the “0″ and “#” keys until the automated recording system gives up and says, “Please hold while we transfer you to one of our new hires who probably cannot help you anyway.” It almost seems like they would rather not talk to me. But I thought my call and business was important to them.
CONCLUSION
Credit card companies and banks are sharks. They care about one thing and one thing only—and that is attracting paying customers. The only way to fight back is to use the naturally existing competition amongst the banks to your advantage. They need our business so we need to reward the banks that are good to us and punish the ones that take advantage of us. Banks are a business like any other. Their job is to service you and me. If we don’t like the way they treat us, then it’s time to do business with another bank. This is not Coca-Cola. Don’t ever be “brand loyal” unless that bank has been “customer loyal”—meaning that they’ve always given you their best rates and service.
Image: RogueSun Media, via Flickr.com
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