What I like on Credit Cards

Yummy… a pizza with onion, green pepper, mushrooms, olives, plenty of tofu and a bit of minced fresh garlic. Tasty! Oh, and I have to buy my new laptop. Well, for all these things and little pleasures there’s the credit card. I prefer to pay with my credit cards as I dislike the notion of acting like an ambulant cash dispenser However, using credit cards requires control and knowing well the “policies behind the card” (the rates, the limits, how the credit reporting system works, etc.) Managing and using credit cards is just a matter of applying good sense.

That said, I have some friends that abuse their credit cards usage. They charge a lot! They go nuts because they feel like they work pretty hard and should be able to do that sometimes. The problem is not that they cannot afford the payment or cannot pay it off. The problem is that most of their purchases are frivolous things they really don’t need. Surely, they work hard and they deserve to enjoy the fruits of their work. But they are not enjoying anything by acquiring a bunch of unneeded objects. On the contrary, they’re wasting their money. The only thing that such frantic credit card usage satisfies is the desire of material possession. Do we indeed work so hard only to crumble under such lame desire? When we are going to use our credit card we always should examine the actual reason behind the purchase. Review carefully your financial state… are you paying a house, a car, a small loan? Then try not to acquire more debt. Moreover, if we have a short or troubled credit histories we must try to do things right. Pressure of extreme debt is what leads to desperate and dangerous measures such as payday loans, for example. Really dangerous. Calm. Relax. Think. Good sense, remember? Life is beautiful.

If you cannot control your credit cards, I think it’s best that you turn them over to the issuer. Alternatively, give them to your husband/wife, if he/she is more responsible Don’t be afraid to close a card you don’t want. Though closing cards never helps to improving your credit scores (on the contrary, may hurt them), the damage will be relatively minor if the card has little time with you. Now, if you’ve held the card for many years… think it over, as closing it may seriously hurt your scores.

Credit’s origin delves into ancient history. Thanks to credit, we can be granted a loan. But credit also signals the creation of debt. Thanks to the advances of informatics and communications, we are able to use our credit cards almost anywhere, anytime. That’s nice, I think. Some people argue that credit cards are evil instruments that may easily leave you broke. I disagree about the ‘evil’ part, but certainly they’re not ‘god’ instruments They said that lenders hide several dirty tricks behind the cards (soaring rates, huge fees, poor limits, etc.) That’s why I said we have to know well the terms and conditions. Here we have a few remarks:

• In general, we have to go little by little with credit cards and scores. Credit is a mixture of trust, settlement and reputation.
• If a card does not work for you, turn it over. Try to keep older cards, though.
• Some people recommend that we should not carry credit card balances. I disagree. Pay in parts, but always amortizing the debt. Avoid late payments by agreeing to an automatic debit so at least your minimum balance gets paid every month.
• Instead of accepting a new card, ask for higher credit limits on the cards you have.
• Use your card carefully, and learn to use them. Sometimes credit cards represent an opportunity for going to the restaurant with the family, buying gifts for the loved ones, attending emergencies, harnessing a sudden business chance, and so further.
• Apply good sense. Don’t hurt your self-confidence. Enjoy your cards but take the responsibility

Finally, I like to buy some healthy pizzas and some gadgets with my credit cards. That’s what I like the most about them

Select Credit Cards

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Credit CARD Act penalizes thrift and entrepreneurship; interchange fee controls would compound harm to consumers

Today, the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 goes into effect. While the law, passed last May, is being hailed as a boon for consumers, it’s already causing a slew of unintended consequences.

Congress should carefully consider how the CARD Act will harm consumers and entrepreneurs and revise the law’s flawed provisions. Furthermore, Congress should resist populist proposals that would further distort the credit card market, such as interest rate caps or price controls on payment card interchange fees.

The CARD Act will make it harder for consumers to get credit just as policymakers are trying to get credit flowing. Ironically, the bill will result in higher interest rates for many cardholders, because it limits the ability of banks to properly price the risks associated with cardholders who make late payments. Even responsible credit cardholders who pay off their bills at the end of each month may suffer as banks increase annual fees and cut back on rewards programs to make up for lost revenue stemming from the law. The New York Times speculated last May that the law might create “a penalty for thrift.” CARD Act proponents claim the bill will make credit card marketing more transparent to consumers. Unfortunately, however, the so-called “Credit Card Holder Bill of Rights” goes beyond disclosure rules and imposes paternalistic rules that limit consumer choice and undermine sound risk-based pricing practices that have long been relied upon by credit card-issuing banks and credit unions.

The CARD Act imposes discriminatory restrictions on adults younger than 21 who wish to obtain credit cards. The law prevents low-income young adults – even those who can vote and be drafted into the military – from getting a credit card without the cosigning of a parent or guardian. This purely age-based restriction on credit card eligibility undermines the ability of college students and other young adults to establish good credit and learn how to manage credit wisely. Worse, by cutting off students’ access to credit, the CARD Act may pressure college students to work more hours and compromise on their studies.

Members of Congress wrongly moved up the date of the law’s implementation. Whenever new regulations are codified, firms need a reasonable amount time to adjust their pricing mechanisms to the changes. The Federal Reserve rules that the CARD Act codifies were originally set by the agency to go into effect July 1, 2010. But Congress moved up that date to today. As a result, firms are scrambling to meet these shifting deadlines, and more card holders have had their accounts closed and credit limits reduced than likely otherwise would have. The law also codifies the Federal Reserve’s unwise decision to ban the so-called “universal default.” A universal default occurs when a credit card issuer raises rates on a cardholder who defaults on a different credit card or loan. This is a sensible risk management practice that enables banks to properly gauge the risks associated with cardholders with weakened credit profiles.

Stifling the payment card industry with federal regulation won’t just hurt consumers, it will stifle entrepreneurship, too. Start-ups often have limited collateral, making credit cards one of the only sources of financing for getting off the ground. The Kauffman Foundation has found that almost half of all small businesses rely on personal credit cards for financing. One such entrepreneur is Sergey Brin, who used his personal credit cards as a college student in the 1990s to start the company that today is known as Google.

Fortunately for consumers, Congressional leaders wisely rejected calls from the retailers’ lobby to impose price controls on payment card interchange fees. Instead, Congress ordered the Government Accountability Office to conduct a study of interchange fees. In November, the GAO issued its report, telling Congress what many economists and other researchers have been saying for years: that interchange fee controls amount to a massive subsidy for some of the nation’s biggest retailers at the expense of consumers and the community banks and credit unions that issue credit cards. As the GAO report pointed out, when Australia capped interchange fees, consumers suffered from higher cardholder fees with no corresponding decrease in prices! (For more on interchange fees, see my Issue Analysis, Payment Card Networks Under Assault, with Ryan Radia.)