|CREDIT CARDS: |
BLESSING OR CURSE?
May 30, 1997
Your questions were answered by Independent financial advisor, Dave Ramsey, and by the American Bankers Association.
Should we pay off our debt or declare bankruptcy? How can bad credit be repaired? Should I take out a loan to pay off my credit cards? At what age should parents allow children to have credit cards? Should there be more restrictions on who can get a credit card? How do banks assess who can get credit, and who monitors the banks?
November 29, 1996
Economics correspondent Paul Solman analyzes rising consumer debt in the U.S.
American Bankers Association
Financial advisor Dave Ramsey
The Federal Trade Commission working paper on choosing and using a credit card.
The Federal Trade Commission working paper on solving credit problems
Consumer Handbook to Credit Protection Laws written by the Board of Governors of the Federal Reserve System.
Victims of Credit Reporting, a non-profit group, has a list of interesting credit related links.
Nerdworld has a library of credit/debt management links.
A question from the
Online NewsHour staff:
On what basis do banks assess who can get a credit card and for how much? We are especially concerned that seniors on a fixed income are being sent credit card offers, with credit limits beyond their means ever to realistically pay off.
Are there trade associations that monitor credit offers made to the public, and can they put any pressure on firms that use unrealistic ratio's in order to extend credit and then reap lots of interest?
The American Bankers Association responds :
In most cases, banks use information gathered from the three major credit bureaus to assess what type of credit offer to make to prospective customers. They look at current debt, available credit lines, income and payment history, among other things, to determine your eligibility for different products.
The credit card marketplace is extremely competitive. Consumers can choose among more than 6,000 bank and non-bank credit card issuers to pick the product that is right for them. That high level of competition has brought interest rates down and has encouraged card issuers to offer a variety of enhancements, such as rebate programs and donations to local schools, to attract and retain customers.
We all get offers for credit cards, just like offers for magazines, cars and long distance phone service. We each need to make judgments as to which products best serve our needs at the right price.
Financial Advisor Dave Ramsey responds :
Generally banks only want to know if you are breathing to issue you a credit card. Again, it is the most aggressively marketed product in our society. The myth in the industry is that everyone's credit and ratios are checked. If this were true dogs, dead people, and children three and four years old would not be receiving credit card offers. We have in our files were all of the above have been made the offers and have been issued the card. We had a friend who applied for a card in the name of Buck Naked and was issued the card. They do not check except for random selection. One out of every so many hundred cards will they even check the credit on or they will do a one point check. Their issue here is to get the card into the consumers hand and get him to use it. They do not care if they use it responsibly. Case in point, the astronomical growth in consumer credit card debt and delinquency rates. Case in point, the 1.1 million bankruptcies that were filed last year, a new record in filings. Most analysts, including myself, agree that those were largely due to credit card debt increases. The most pitiful cases are the very young with deep credit card debt. For example, the nineteen year old with $60,000 in debt that I talked to the other day. The senior population is also taken advantage of. They are faced with living on an extremely fixed income like social security. Like a couple we met with in our offices a couple of weeks ago, they got a credit card in the mail and accumulated a bill of $80,000. Sadly, this is not unusual. No, no one monitors this stuff. It is the open market and that is why consumer advocates like me and the book "Financial Peace" are screaming so loudly that this has gotten into the stupid zone.
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