Wednesday, April 22, 2009


I don't know about you, but the actions of some of the banks and other credit card issuers are starting to rile me. It's bad enough that they graciously allow us to borrow money from them (since that's really all it is) at interest rates that, in my younger days, were offered by a guy with a broken nose named Vinnie. If you missed a payment another guy found you and broke your arm. Or worse. Now we find that if you make a late payment to card company A, company B raises your rate past what Vinnie used to charge. Or, and this one happened to the Queen of the Frontier and I, they reduce your available credit to $.50 more than you owe! Yes, that's fifty cents. If I hadn't spotted it, the finance charge for that month would have put us over limit and resulted in, you guessed it, a big fat fee.

Now, when I was in law school we learned the elements of a contract. The main ones are that the parties have a mutual agreement as to the terms of the contract and that any change in those terms must be mutually agreed to by the parties. So how is it that the credit card company can simply send you a notice, in a font size close to microscopic, and change terms any time they see fit? They're clever, that's how.

What that microscopic notice says is that you can "opt out" of the changes and pay the existing balance under the old terms. Of course, you can't use that card ever again. And the act of opting out closes the account which lowers your credit score. But what the heck, we're just the little people and they're the banks so get over it!

The whole issue of credit scores also burns my butt. While CNBC reporters can rant on the airwaves about all of those bad people who took out mortgages they couldn't afford, no one seems to want to ask why so many borrowers were classified as "sub prime". Sure, their credit scores were below 750 or what ever. But do you really have any power over your credit score? When credit card companies can "adjust" your rate or available credit at their whim, how does the borrower have any control over this vital number?

You don't. In the past, say 30 years ago, the credit score was a way for bankers to evaluate the risk that someone applying for a loan would pay that loan back. The credit reporting agencies would list all of the pertinent information but, since each borrowers history was different, the decision making was then very subjective. Poor risks might be given a loan and the bank, and more importantly, the banker might look bad. The banker's boss might look bad. My gosh, the bank's CEO might look bad to the stockholders and we just can't have that. The FICO score offered a way for banks and bankers to be more objective in loan granting. What the score has become is really a way for said bankers to CTA (and I don't mean cover there assets). The mistakes, if made, are now the fault of the rating companies. With so much credit now being used, from mortgages to car loans and from store credit cards to bank credit cards, the real credit worthiness of a borrower is buried under page after page of credit reports. The score is a nice shortcut for the lender and who really cares if the person applying is a good risk or not. The score is everything. It's just too bad that we now see that your credit score can reflect more about the shenanigans of the card company than the real risk of you not paying back a loan.

Whoever said life was fair...lied!

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