Credit Card Ridiculousness 2009

Earlier this year, Congress passed the Credit Card Accountability, Responsibility and Disclosure Act in an effort to protect consumers from the oftentimes predatory actions of the credit card corporations. In retaliation, it looks like these corporations are going to start rail-roading their customers even more than they already have. Citibank is going to increase some credit card interest rates to an insane 30% even if you’ve paid your bill on time for years, and Bank of America is actually going to start charging fees on people who pay off their balance in full and on time every month.

Wow, the arrogance of these guys continues to amaze me.

Here’s some advice from the SF Chronicle:

If you’re fed up with your credit card company, consider one of the three following strategies:

First, shop around for a new card. Cardratings.com lets you search for cards based on rewards still offered, frequent-flyer miles, low interest or balance transfers.

Second, cancel your credit cards and live without them. Since one of the side effects of the pending Credit Card Accountability, Responsibility and Disclosure Act has been a reduced number of premiums on credit cards (i.e. fewer “points,” lower rebates on balances, a more difficult time cashing in frequent-flyer miles) and since deadbeats are now fair game for the fee racket, it might make sense to go all-cash, all the time. Most bank debit cards are associated with Visa or Mastercard, so you’ll be able to use them for e-commerce. And yeah, credit cards can be convenient for travel, but you don’t necessarily need a credit card to rent a car.

Third, realize that credit history is largely based on your behavior as a borrower — i.e. the length of time banks have been extending credit to you, how timely your payback history is, and how much you’ve borrowed versus how much you could borrow. So you can always work to build up your credit using a) a checking and savings account that you keep in good standing (no overdrafts!), and b) a small consumer loan that you pay back regularly and on-time. An example of this type of loan: a car loan, a student loan, or a consumer loan through your bank.

Now, I’m not one of those people who screams that “Credit cards are the devil!” because I realize that having a good credit history is really important in life under capitalism, and getting in the habit of routinely paying off a credit card balance in full and on time is a great way to boost your credit score and get a little something back if your card offers rewards. However, these latest moves by the industry are just ridiculous, and I think the author above makes a good argument for why, in these crazy economic times, it might be better to just scrap the credit cards if you can, or at least aggressively try to pay off any balances you have.

In terms of the third point–about building your credit through things like keeping a checking or savings account in good standing with no overdrafts, or taking out a small car, education or consumer loan–why not do all those things through a credit union or community bank? The numbers show that across the board, credit unions have the best interest rates for loans. On top of that, parking your money in a credit union is the easiest way to start investing it in a socially responsible way, as credit unions and community banks do a lot to contribute to the well-being of your local community.