Wednesday, November 30, 2011

My Love Affair with Credit Card Companies

Thank you, credit card companies.  Every week, you send me a letter with a note inside, telling me that I am pre-qualified for one of your fancy-pants cards.  You raise my hopes, telling me that I will be able to afford whatever my credit limit allows.  So I make that call to you (using the number provided in the letter, mind you), I speak with you and give you my life's information.
(Andres Rueda via Flickr)

And then you tell me that I do not qualify.

What a sack of bull.  It angers me when you do that, credit card company!  You get my hopes up, getting me to think that I can now afford that ceramic fly-shaped bowl which was hand-painted by some modern artist that sells for 3,000 times more than it's really worth, only to crush it by saying, "Oops, we made a mistake. You don't qualify at all. What you DO qualify for is pity, you poor, poor, poor, pitiful fool."

Unfortunately, for many of us, since the credit bubble burst back in 2008, we don't get credit card offers, and the ones we typically get are crappy offers, with rates hovering in the teens, and credit limits in the low thousands.  And that's if your credit is pretty good.

If your credit is like most Americans, you'd be lucky to get an offer like that.  We don't even get offers any more.  And those we do get are contingent on signing over all assets to the company, or having 20 cosigners (just in case 19 of those are really deadbeats).

I thought of this business concept back in 2008, when the economy was going down the tubes.  I never liked credit card companies in the first place, and I realized that they were just trying to screw those who had financial problems.  If you had gotten into too much debt somewhere, or had not made a debt payment once (even if it had absolutely nothing to do with credit, such as medical), your interest rates skyrocketed.

That did not seem fair to me.  Shouldn't they increase your interest rates based on your payment history with the company?  I can understand why they would want to look at your overall debt repayment history in order to get an idea as to how likely you were to repay debts, but repayment history is not a conclusive science.  It only gives you a general idea of how likely you are to repay.

It's like your employer checking your wardrobe and deciding how productive of an employee you will be based on that.  You will definitely find out some things and you will be able to make some assumptions, but you will not be able to determine what kind of an employee you will be solely based on that.

With that being said, the concept was that those who signed up for a credit card with this company would be given a very low limit with a pretty high interest rate.  What I had initially figured was a credit limit of $100 and an interest rate of about 15%.

After reading those initial figures, you're probably screaming at your screen.  The reason for those is because you are given a clean slate.  That is not based on repayment history, debt ratios, or anything else.  You are given a clean slate, and all future decisions about limits and interest will be determined on your ability to be financially responsible with the card.

After the first three months, your credit limit and interest rate will adjust according to your usage and payment history.  If you use the card and pay it off monthly, your limit will increase while your interest rate will decrease.  If you use the card and do not pay it off monthly or are late with payments, the limit will decrease and/or the interest rate will increase.

After using the card for a few years, the interest rate and limit will be about the same as traditional credit cards.  The main difference is that your rates and limits will only be based on your payment and usage history of that card itself.  There will be no additional factors in it.

This will truly benefit those who are poor because instead of having to choose a card which bases your limit and interest rate off of your credit history (which most likely is very poor, and the card you will be offered will be horrible--if you even get offered a card at all), you will be offered a card which, although not very beneficial at first, is fair and solely based on your performance from this point forward.  This will truly be a fair credit card, where everyone starts at the same point and gives everyone the same opportunity to prove their ability.

What do you think of this card?  Are there any pros or cons which you can think of that I haven't?

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