The Senate passed a bill today, the main provision of which prevents credit card companies from raising interest rates unless the payments are more than 60 days late. After that, the rate must be returned to the original rate if the holder pays on time for six months. The industry has been spiraling out of control for years now, and the recent economic troubles have only seen a marked increase in interest rates for cardholders - sometimes with no late payments or warning at all. Although the bill is not as gutsy or effective as the earlier-rejected 15% cap on interest rates, it's a start.
Over the past week or two, I've been working on signing a new lease for a condo on the south side of town. Inevitably, a discussion ensued regarding my credit - specifically, my lack thereof. Although it wasn't a problem for this lease in particular, I've run into the issue before with leasing agencies and T-mobile. I simply don't have any.
When I was at school back in Virginia, I remember clearly walking into the student center on my first day of orientation to find the room filled back-to-back with banks pushing credit cards. My father, grinning a bit wryly, warned me to steer clear. I had known already that I didn't really want to fall into that trap - there were plenty of warnings from parents, family members, and panels at CNU's orientation that railed against getting deep into debt this early in my life, so I did what I thought to be the responsible thing, and eschewed it completely.
The real world proved to be a little more complicated.
This is a terrible time for anyone to be in debt, and I'm still extremely reluctant to get a credit card, especially because the status of my job is up in the air. Nobody in my office is really sure where we're going to be in a month or two, and the company for which I work has been hinting at the possibility of layoffs, which has everyone feeling a little morose. I'm in no immediate danger, but the future is uncertain.
Being only 21, I haven't really had to worry about my credit rating. My car is in excellent working order, I'm able to get a cell phone plan, and I'm certainly not buying a house any time soon, but I know that at some point in the future - perhaps soon - the time will come for me to Become An Adult and drive myself into debt in one form or another. It's more or less an inevitability, and the prospect of it worries me.
Am I crippling my future prospects by staying out of the game for as long as I can? And if so, what's to be done about it?
Tuesday, May 19, 2009
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6 comments:
http://www.getrichslowly.org/blog/2007/05/25/proper-care-and-feeding-of-your-credit-score/
I'm in the same boat. I don't have a credit card and I'm kind of avoiding getting one for as long as possible. I'm pretty (read: REALLY) terrible with money, and I know it would be bad news bears for me. :\
@Joe: That's a great article, but the more I read about it the more I'm convinced that the whole system is just ridiculous. In order to build credit, you have to:
1. Not use too much credit
2. Not use too little credit
3. Don't have too many accounts open
4. Don't close too many accounts
5. Hope that you don't get randomly screwed by the banks, credit card companies, or identity thieves.
The system is so deeply-rooted as to be intractable - just about everyone is going to participate in it at one point or another. Congress' measures to provide oversight, although their hearts are in the right place, can only do so much to reform the system. There has to be a better way to handle it.
Well, it makes sense (most of it, at least) to me.
1) Using too much credit (it should be specified that this is measured by % of total credit being carried over in a month, not the total throughput of money on the card in a month) implies that you are not entirely responsible with it.
2) You aren't penalized for not -using- your credit. You're penalized for not diversifying your credit options. I still agree this is shaky, but it is only 10% of the total score, the lowest of the categories.
3) It isn't having too many open, it is opening too many at once. This implies that you need fast money to carry you over a rough patch, a sign of fiscal irresponsibility.
4) Closing accounts hurts you due to the calculus assigned in weighting longer-term credit lines. When you remove those long-term lines by closing them, your average term length is pulled down to being more recent. Also, credit closings sometimes imply that you can't handle the credit offered, which may also be a sign of fiscal irresponsibility.
5) Most times you are screwed by banks and companies, it doesn't impact your credit history. Same with identity thieves, so long as you get proper documentation of the event to all appropriate companies.
I'm all about credit. I'm all against usury. I think most forms of lending fall into the first category, including most credit cards. The real problem here is the blatant financial illiteracy of the American public, which is a direct result of our education system. Change that, and I'm willing to bet you'll get the most bang for your buck.
I'm going to be completely pedantic here and object to the idea that your actions "imply" certain things about your ability to pay down your debt. I know you have to paint with a broad brush when you're talking about an industry as overwhelmingly massive and oft-abused as the credit card industry - it's completely infeasible to take people at their word, or treat things on a case-by-case basis. But shouldn't we be trying to give cardholders the benefit of the doubt instead of allowing lenders to run roughshod over the whole operation?
Education is, as is so often the case, the silver bullet. We are of one mind on that.
It's all messy and interwoven. There are ways to make it work and there are ways to screw everything up. You just have to find a good balance of what works best for you.
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