Getting the Monster's Attention
Consumer credit has become a monster. It is a monster that eats away at family security. It produces monster profits for certain lenders. And the monster has grown big enough to bully Congress and state legislatures. What will it take to tame this beast?
I'd like to announce the arrival of a knight wielding a spear, but change is more likely to start with small steps. I see four from the past few weeks:
One, Congressional hearings. When Congress calls for hearings on credit practices, attitudes begin to change. Senator Dodd and Senator Levin have changed the comfortable assumptions that creditors will always run the show in Washington.
Two, a popular story. My nominee is James Scurlock's new movie, Maxed Out. It is showing in theaters across the country. Take a look at the summary from Nightline: http://www.maxedoutbuzz.com/
Three, an Enron moment. Sometimes something terrible happens that is big enough and important enough that the usual power brokers in Congress can't hold back the tide. With 1.2 families moved out of their homes in foreclosures last year, and another 1.5 families likely to be pushed out this year, the moment may come soon.
Four, someone breaks ranks. Citibank announced that it was dropping universal default. Chase said it would introduce consumer-friendly practices. Cards with names like "clear and simple" are starting to emerge.
Are these four changes enough to cage the monster? Heck no. This is a powerful beast, and finding ways to contain it will be a serious challenge.
The current changes are tentative, and they could disappear like a puff of smoke. But, for now, they seem to be getting the monster's attention. That's a good place to start.
Don't be taken in by this clever marketing ploy. What is promised, and what reality is, are worlds apart. There is nothing clear and simple about credit cards, the traps are still in the agreements and hidden policies. All this means is that they recognize what we're asking for, and they are customizing their marketing message to give it to us, but nothing is really going to change. They've been doing this for decades. There is a card out now that promises to help you save more money. In reality, you spend more, and the savings never amount to much, and you actually end up worse off anyway, whether you recognize it or not. You can do some real magic tricks with the manipulation of numbers.
I will say, however, that all the things mentioned above are encouraging. I just hope people learn from it all.
Jim Anderson
The Truth About Credit
Facebook ProfileMarch 15, 2007 7:49 PM | Reply | Permalink
Elizabeth:
I watched the Nightline program in your link. While I agree with you 95% of the time, I would like to take issue with something you said in your Nightline interview. You said that people don't need to establish credit, but that's not really true. When you said "pay your utility bill on time," that doesn't help your credit score, because the only time that the credit reports reflect your utility bill is when you don't pay it.
Everything that you pay for now is dependent on your FICO credit score. Insurance rates, job opportunities and the interest rate you will pay for a house or car are dependent on credit scores. If you do not establish credit, you will pay a higher premium for all those things (assuming you can get them at all), even if you think you deserve a lower rate.
Congress has already granted the use of credit reports in this way. What can be done to reverse it?
Satellite Sky Blog
Find the Truth. Do Justice.
March 15, 2007 8:00 PM | Reply | Permalink
Geeez!!! These banks have been effective at making their propaganda seem like facts!
You are right about the use of the FICO score for things other than lending money. However, an absence of negative reports is all you need. You don't need loans. If your FICO score can't be calculated because you have no accounts reported, you simply need to explain that you live on cash, you don't borrow money. Heck, I think the default score should be 800, that way people who don't borrow money get the highest rating. If they increase your rates anyway, I think you may have recourse. You don't have to borrow money to get insurance, or qualify for a job that handles money. You can't be denied a job based on your credit report unless it shows that you are bad at handling money. If you don't borrow money, you are probably much better at handling it than most people.
Jim Anderson
The Truth About Credit
Facebook Profile
March 15, 2007 8:30 PM | Reply | Permalink
There are those times in the month when the bills need to be paid. You look at what you have and what you have to pay and you want to choke someone because no matter how much you cut, the utility rates, gas, and food prices keep going up.
And EVERY SINGLE MONTH there is SOMETHING ELSE that has to be paid like car registration, driver's license, property taxes, something at my 4th grade daughter's school (pictures, year book, milk money and that is NOT including anything extra curricular) or some other freaking thing that pops up.
And god forbid that something needs repaired around the house or on the car. The house is ancient (100+ yrs) and falling apart like the rest of the country. These are NEVER within one's budget.
I feel like I'm in a pirhana feeding frenzy with no way to stop being eaten alive. It makes me want to scream and every month I have to tell my daughter to stop saying she wants anything or even wishes for anything. THERE JUST ISN'T ANY FREAKING MONEY!!!
It's no wonder people are basket cases these days.
NeoLotus
********
Sign the Petition at stopIranWar.com
March 15, 2007 9:40 PM | Reply | Permalink
Jim:
While your reasoning may seem like the logical one, I can tell you from personal experience that that is not how the lending institutions look at it. If you do not have a previous record of having used credit wisely, the lending institutions treat it like you are a high-risk borrower.
On the other hand, the same lending institutions know that young people are the ones who are most likely to spend beyond their means while in college, which for them is the most profitable part of their business.
Secondly, mortgage companies don't want to be the first ones to lend money to someone. If you don't already have an established FICO score, I don't think you can qualify for a loan, period.
Satellite Sky Blog
Find the Truth. Do Justice.
March 16, 2007 2:12 AM | Reply | Permalink
Even bankruptcy attorneys buy the propoganda! So you have to go in debt, so you can get in more debt? Where is the reason in that? Cash buys stuff better than debt, every day of the week!
If I were a banker, I'd also say that you should get more debt. You can get a fifteen year, fixed rate mortgage. All you need to do is make sure the payment is less than 25% of your take-home pay, and you have a substantial down payment. It can be done. You need to find a mortgage company that does actual underwriting. Using a Beacon score is lending for dummies, which is one reason they made so many bad lending decisions lately. You can qualify for a loan like this if you:
1. Have paid your landlord early or on time for two years.
2. Have been in the same career field for two years.
3. Have a good down payment. (none of this "nothing down" stuff.) If you have a large enough down payment, you can also save a lot of money by not having Private Mortgage Insurance.
4. Have no other credit, good or bad.
5. Are not trying to take too big of a loan. The payment is 25% or less of your take home pay.
The "build your credit" so you can qualify for a mortgage myth is for losers.
Jim Anderson
The Truth About Credit
Facebook Profile
March 16, 2007 7:58 AM | Reply | Permalink
I'm watching 3 of my relatives slide down the slippery slope into credit/lending hell. I rent, I don't think I'm ever going to try the mortgage thing, and I try to send them money from time to time, but a fly entombed in amber stands a better shot of being free than they ever do of being out of debt. Various institutions have done a remarkable job of running the credit game against american consumers, nee citizens, for years. Your paycheck amount may as well be published on the internet, your personal data are available for sale, it's ugly, and it's only going to get uglier unless we start seeing some CITIZEN advocates stand up and put an end to runaway predatory lending. Loan sharking wasn't stamped out, the green-eyeshaders just 'went legit' and put on ties and business suits and went to work for the banks. Find yourself not being able to afford to pay attention? What's in YOUR wallet? What, indeed...
March 19, 2007 7:46 PM | Reply | Permalink