The program itself started out by revealing the history of how credit card companies positioned themselves to take advantage of a lack of regulation in some states. They then went on to discuss how the companies then came to exploit the lack of regulation to take care advantage of the consumer/borrower (told you they were biased…but then again so am I).  I’m not going to suck the life out of you with the intricacies if the credit card business here today but I will say the more I pay attention to the business the more I wonder, aside from the stock holders, who is really benefiting from their practices. The one thing I found surprising was how many ex-credit card industry professionals came out to speak against industry practices.  

Now I’m not here to completely bad mouth these guys but it does reinforce to me why I choose to find other options than credit cards. Remember these consumers, including myself, signed up for this ride and if you don’t understand the contract maybe you shouldn’t be so quick to sign on the line. I am personally a share holder in several banks through my mutual funds so I love it that people several million people can’t control themselves almost to the point of bankruptcy then manage to fight their way back through 30% interest rates and late fees then immediately jump back on board for another trip. To that I say….YEEHAW boys! Let’s ride these hogs all the way to retirement on the backs of out of control consumers trying like hell to save the embarrassment of a low credit score! Keep it up suckers, daddy needs a new Maserati!   

So if you have 40-ish minutes of your life you won’t regret spending on the couch and you have an odd fascination with money, business & credit click here: FRONTLINE: Secret History of the Credit Card or even better read my Credit Card Debate page to learn how you don’t have to ever deal with them if you don’t want to.

Having a credit card to fall back on can dissuade you from building a proper emergency fund. I think this happens for a couple reasons. First, with credit you already have a safety net in place. That’s actually one of the reasons many people get credit cards in the first place. Though this can quickly blow up in your face because you could be taking on debt at the exact time it gets most difficult to pay it back. It amazes me how many people grab their credit cards right after a job loss and began using high interest cash advances for everyday life at the exact worse time to be borrowing money. I think having the cards as a safety net allows people to feel like they’re covered so the urgency to save really isn’t there.

Second, I think another reason people don’t build emergency savings when they use cards is because they’re constantly working to clear the debts. Instead of making savings a priority they make keeping up with the card balances a priority. The more debt they have on their cards the less they have available to save and the more likely they’ll need the cards to cover their butts again and so the cycle continues.  

At some point if you want to go with out credit cards you need to break the cycle of spending instead of saving. I personally stashed away a little dough to use for future “emergencies” then stopped using the cards. Once I stopped using the cards and had some real money in the bank to fall back on all I really had to do was eliminate the balances and at that point I was done with the credit card cycle. I had no use for them anymore. I now have an emergency fund with more money available to me than I ever had available on my credit cards…oh and it’s earning interest too.

The good news is Mark has decided, for the first time ever, to start saving. He’s now quickly building an emergency fund since this’ll be his only safety net going forward. It looks like with a little encouragement and some discipline our buddy Mark won’t be “financially retarded” too much longer…at least that’s the plan.

So what’s your plan for dealing with credit cards, do you want them gone, do you really need them around? Let me know how you feel about this.

Once I received the news that evening my wife and I decided we needed to travel three states away and we needed to leave that night (and I’m not talking about crossing three of those little East Coast states, I’m talking about crossing three big fat West Coast states). When we were discussing our options about flying, driving, going or not going, a funny thing happened that was sort of new to us…not once during our discussion did my wife or myself ask the question “Do we have enough money” or “How much will it cost?”  We knew stuffed away in a local credit union was had everything we needed to do whatever we needed to do.

At 2am, within couple hours of receiving the emotional news Mrs. Financio, Mrs. Financio JR, and myself found ourselves in the SUV, making a quick stop at the ATM to grab some cash then we made a break for the border(s).

18 months ago this whole scheme would have played out a bit differently. It likely would have involved some unpleasant discussions about money and credit cards and bills and gas money, all are the last things I want to talk about when things complicated. After all was said and done there was no debt incurred, there was no discussion about the money involved in making the trip. We were free to do what we felt we needed to do without any concern for the dollars involved. This unexpected trip that came about by a huge loss in my life was in a way also huge success for me financially and, proof that some sacrifice and good decision making can pay off in big ways that can’t be explained in terms of dollars. The crazy part was that this came right on the heels of our Serious Budget Busting Week I think somebody out there is testing me to see if I’m really serious about this whole debt free thing!

the %!<&\# at Citi just jacked my interest rate right after I made the stupid payment

Her call sent Vinny Financio into action and prompted me to snoop around the inter-web a bit. Little did I know I would find out that Citigroup has also started charging annual fees to card holders who don’t put more than a specific amount on their cards, typically $2,400 per year. So let me get this straight…If I use a card you charge me, (I get that) If I don’t use my card you charge me (thats the part I don’t get!).

Okay that’s not really true, I do get it they are charging customers more fees. That’s what they do, that’s what their consumer business model is based on. The part I don’t get is why do they still have customers? You know the saying though…

you can lead an idiot to water but you can’t make him drown himself

It amazes me what people are willing to put up with. Luckily though Military Wife, due to her recent financial progress, was able to close the account and I doubt she was able to contain her ex-Marine Corp potty mouth when she told them what she thought about their new programs. I guess at this point for those that are willing to accept this treatment more power to them. Somebody has to get bent over the bar to keep those bank stocks in my mutual funds afloat for another 30 years. Personally I’ll take my own road on this one.

1. The third week of October is apparently our week for eating dinners out. Sunday we took my wife’s mother out just to enjoy her company and thank her for watching our daughter five days a week for free (I figure that’s worth tossing some Thai food her way every once in a while). Monday we I needed to pick up my vehicle (I’ll get to that one in a minute!) so that lead to another dinner out. Though this time we were hooked up with a $10 off online coupon so that covered the beer. Tuesday, my favorite aunt was in town for a business conference so once again we headed downtown to catch up over some chow. Friday we find ourselves at a rehearsal dinner for a friend’s wedding – true, the dinner is free but the baby’s new outfit necessary for flower girl duty…well that’s not so free! I consider this a dinner related expense.
2. Saturday gets pricey downtown again even with our crazy hookups! Due to the above mentioned wedding we spent the weekend in a downtown hotel suite. True we only live 30 minutes from downtown but with the baby and a lot to do we decided to get a place to stay in the city. With my wife’s crazy hotel hookups (she works in sales in the hotel business so she knows everybody that matters) we got the room for less than a third of the regular price. And since I worked my crappy second “get out of debt” job as a valet at this same high-end hotel the $38 per night parking fee only cost me a smile and a couple fist-bumps with the ex-coworkers.
3. The crazy hookups continued to ease the pain through the weekend but we still dropped some dough.  Saturday my hot little sales-lady wife pulls some more strings and we find ourselves at the Zoo with $30 worth of free passes. Well free that is if you exclude the $5.00 parking, the $12.00 snack and the $7.00 Starbuck’s drive-by on the way there. I guess that’s the cost of some beautiful moments with my little girl. And you can’t buy that at your local Wal-Mart!
4. The wedding Saturday night had no official cover charge. Dinner was provided by our hosts but there was a gift purchase involved so in a way there was a cover charge. No big deal though, dinner was good and it was all so terribly romantic that it probably would have induced vomiting if any outsiders were watching. (take a moment here and wipe your eyes – I know, I’m a little choked up as well).
5. Here was our big budget killer this week! I had the pleasure of forking over the money to replace the engine in my SUV.  This expense stung like hell but the good news is since I got such a sweet deal on the car (once again Viny Financio and his fist full $100’s talked louder than the seller’s asking price) I was still right at Blue Book value even after we dropped in the new engine. Of course this was due to me having a very good friend that does this sort of stuff for a living so instead of laying out the estimated $6,800 I was in it less than $4k I’m glad we were able to cover all this with cash from our emergency fund because they don’t accept credit cards for homie-hookups! And thanks to another good friend I also managed to get by without needing to rent another PT Cruiser/death Trap.

So all-in-all this week cost us right around $4,500 not including our regular living expenses! Things did work out though, and it helped that October is double a Magic Month for us. In a way though I still feel sort of like I was accidentally kicked it in the groin by my own friends and my own possessions but we’re still rolling FinancialFreakShow debt free and we’ll keep fighting but I promise you Vinny Financio will keep fighting dirty!

The first reason is because this simplifies my life greatly in several ways. One I don’t have the stress of debt hanging over me every minute of every day. Second I don’t have many bills to keep track of and pay every month (I currently pay 8 bills each month and half of those are deducted automatically).

The second reason is the big one for me. Taking debts out of the equation means my income is no longer being used to support those debts. Not paying these payments means my income is now free to invest, spend & save. When debt is sucking your income out of your hands as fast (or faster) than you earn it you cripple yourself. You spend your energy and, more importantly, your time trying to climb a mountain you have the weight of payment books trying to drag you back down. You spend your days trying to make money for someone else – I don’t like that feeling.

So by eliminating debt payments you simplify your life and free up energy and cash that can be used towards more productive goals like retirement planning and building wealth. How hard would it be to stash away 15% of your income towards retirement if you had no car payments, credit card payments, or student loan payments? If you don’t believe me calculate your debt to income ratio then swing by the local old people farm and ask them what they would do differently if they had the chance. I’m sure they’ll be more than happy to give you their take on credit cards and car payments.

Enjoy the following guest post – and when you get to the part about “a very wise man” and “single-handedly did something Superman and an army of super heroes couldn’t have done” remember that me she’s talking about- oh yeah!

‘Deployment money” a military wife’s favorite words. Visions of Coach Bags and spa trips dance through her head while trying to fight back the tears as her husband boards the plane. We all do it, yet most of us won’t admit it. This time though I’m taking this deployment to a whole new level. I’m on a mission to go down in the military spouse hall of fame as the one who passed the Coach bags in the Exchange and with a disdainful smirk I head to the children’s section for the half priced shoes. Ever notice they put those gorgeous bags right in the front walkway of the store? I am on the road to paying off all of our debt. All of it, all $125,000 in credit cards, car loans, and the boat. Our awesome boat – yup, the one we can’t afford to put gas in.

Thank you to a very wise man who, in a 20 minute conversation, single-handedly did something Superman and an army of super heroes couldn’t have done. Got me (of my own free will no less) to pull every credit card out of my wallet, wrap them pretty in a rubber band and throw them in a drawer I affectionately call the “junk drawer.” Fitting name huh? I then proceeded to break the news to my husband. We sat down and had what was probably the most open and honest discussion about our finances in almost nine years of marriage. We mapped out a plan TOGETHER, figured out where we could cut back, then celebrated… by eating our first dinner at home in a long time! (a personal apology to all Olive Garden shareholders).

Using my husband’s first “deployment money” that came in from a recent short trip, I paid off the lowest balance debt. Seeing that first zero was almost as exciting as a new pair of shoes. The second zero balance I have achieved almost made me… well you get it.

It’s a game now. I created a sweet little excel spreadsheet staying true to my “excel goddess” nickname that auto-calculates our totals, gives me the percentage paid down on each debt and the total percentage of debt paid off to date. Are you ready for this? 10.24% in 2 weeks. TWO WEEKS!! That’s about $12,000 of worry, stress and interest we’ll never have to pay on again!! He leaves again in a few weeks for 6 months this time. And I will sit in my office every day and secretly curse all of the women telling stories of the money they spent the past weekends on shoes, clothes and manicures, and I think of all the things our family can do with our money when he comes home. Things like a family vacation paid for with actual money. All out of our bank account instead of on credit cards. Amazing.

I have a feeling the next 6 months is going to change the rest of their lives. So do you think she can pull it off? Do you think somebody’s going to get hurt if they stand in her way?

Please take a second and add an encouraging comment.

PART 1.

My lack of credit cards (the why)

Living without a credit card is actually not very complicated. In my opinion it’s actually more simple than living with one. I have now been without a credit card for over two years and have not had to change my lifestyle because of it – well atleast not in a negative way.

First I want to discuss the reasons why I don’t use credit cards. For many people who have “credit card problems” the reason is usually self control or a lack of financial knowledge. Credit cards are often used as a financial crutch to help people limp along when they don’t actually have the money to cover a purchase they can’t resist or truly need in the case of an emergency. Many people can manage credit cards without getting into any major trouble. This was the case for me personally, my credit cards and balances they carried were far from the point of blowing up our finances and we had no trouble handling the payments each month. I was even able to enjoy some of the “rewards” these cards offered to me.

So why did I decide to remove the cards from my wallet if they weren’t causing any problems and was reaping some rewards?  Well folks there were a few reasons…

I didn’t like the feeling of paying for last month’s expenses this month. I hated sending off  money I just received to pay for things I didn’t posses any longer. Even though I may have been able to pay the balances down to zero each month I still felt like my finances were a month behind. The weight of any debt no matter how small has a way wearing on me. The truth is carrying debt takes energy from your life even if it’s only the energy needed to check the statement and send the payment.

Overspending; a Dunn and Bradstreet study is often quoted in blogs, and the major media. The study reports on average you’ll spend 12-18% more when making a purchase with a credit card as opposed to cash. And to prove their point they noted the average McDonald’s transaction increased from $4.50 with cash to $7.00 when credit was used. When they looked at vending machines, the average transaction size nearly doubled. Now for me I don’t doubt that I unintentionally spent more using plastic at times (I’ve been guilty of supersizing my life a time or two!) I know for a fact I’ve done this with the thought that I’d be getting more perks by adding to what I charge. So even though this was not the key factor for dumping my cards it was defiantly a consideration.    

Paying interest; this is an easy one in my opinion. Why would you save money at low checking or saving account interest rates while carrying a high interest balance on unsecured debt? It just doesn’t make sense to me – why pay interest when with a bit of planning you could be receiving interest? I never quite understood why people will say “don’t pay off you mortgage because you can make more in the stock market” and then use credit cards with 10%-30% interest rates. But it works for you have at it

I also saw no benefit to using a credit card. I know they offered me points, and insurance, and extended warranties and cash back, but to me I realized I was putting up with the issues above and found myself never getting any real benefit from all the extras they were offering me in exchange for dealing with the negatives. And as far as the convenience factor, well to be honest my credit cards weren’t anymore convenient than my debit card.  This was the big reason I now have no credit cards in my wallet…they do nothing for me, I didn’t see the so called “benefits”

This was my biggest reason….Why spend your time trying to outsmart the credit card companies? This is what they do for a living and they are better at it than I will ever be. True some people can beat them at their own game, charge up the month on credit, pay it off on the 30^th, never pay fees, never pay interest, and collect the rewards points at the end of the month.  If that’s how you roll and how you want to spend your time and energy. I’d much rather spend my time chillaxin and not worrying about trying to outsmart them while they’re trying to outsmart me. I’m not saying you can’t outsmart these folks but I am saying it’s a lot of damn work! 

This was the big reason…. So to briefly summarize why I don’t use credit cards…I don’t like to pay interest, I don’t like to being tempted to over spend, I don’t like the hassle of making the payments on time, and finally I never really received any benefit from the incentives they offered. So basically it came down to multiple negatives and no real positives.

Let’s put it this way….Let’s say you were dating a credit card. She charged high fees when you used her and possibly charged you when you didn’t use her, then tempted you to do things that weren’t in your best interest like overspending, then she drove you crazy by making you pay her a 25 days after the fun was over or risk having to pay her even more, then she offered you restricted “benefits” and “rewards” that you didn’t really care to use and if at any point you fail to keep your promises in the relationship she will call incessantly, threaten you then ultimately drag you into court and win. Then after you and her work out all your monetary issues you realized she never really cared about you in the first place and was only after your money – I don’t think that’s a very healthy relationship. Sorry, no matter how good that hot little number looked being flaunted around town with me I’d have to break it off!

To reinforce my thoughts around credit cards but with a little less Vinny Financio I want to refer back to my post So When is Debt Okay?  In this post I lay out four things to consider when determining if a debt is okay. Rule 1: Common Sense Rule 2: A Guaranteed way to repay Rule 3: Peace of heart and mind Rule 4: Unity;

In my opinion credit cards do not satisfy the four rules outlining when it is okay to borrow. Well it could fit into rules #1, #3 & #4 Common Sense, Peace of Mind & Unity. Though this all depends on your household situation but in my household we came to “Unity” on the fact that we didn’t see the “Common Sense” in borrowing money day to day and coming to that agreement gave us “Peace of Mind” knowing we were always living on what we had. As for Rule #2 Guaranteed Way to Repay; most credit cards I know of don’t have this guarantee built into them. They are only guaranteed by your future income but your future income is only guaranteed to the point that you have sufficient income. Lose your income and you have no guarantee there for it’s not a “Guaranteed Way to Repay.” Credit Cards are not secured by any real property which is why credit cards are referred to as unsecured debt.

I only have one more point to make regarding using any form of debt in your day-to-day life. This one though is intangible and hard to quantify with numbers. The feelings & emotions people feel around having debt in general. In several of my posts I’ve shared the experience others have had with their own personal battles with debt. Here are a few of those quotes:

Being away from my family at night is one of most difficult things I’ve had to do.  When I look into my kids eyes though, I know it will be worth it.  - Jeff, Deliver Away Debt

and I think of all our family can do with our money when he comes home. Things like a family vacation paid for with actual money. Out of our checking account and not on credit cards. Amazing.  - Military Mom, Deployment Money

he called me the day after our discussion and let me know he cleaned out his wallet to make room for some cash instead. 8 days later he’s still on the wagon as he puts it. I told him he sounds like a recovering crack head, he said that’s about how he feels.  - Mark, 8-days Clean

Now that I’ve laid all this out there for you I want to finish with the thought that you’re all big boys and you can make your own big boy decisions about your finances but that’s my $.02

Part 2.

Living without credit cards (the how)

Once I decided I was no longer going to depend on credit cards as a way of making purchases I needed to come up with another option that would allow me to make all the purchases I needed to without cramping my style too much.

There were a couple issues I took consideration before I got rid of all my cards. How was I going to have access to my money anytime & anywhere?  Second how can you function without a credit card, especially since I travel a bit and my wife almost is never carrying much cash? Here is what I came up with and so far it has worked flawlessly for us.

The first thing I did was create a place to stash the money. Since I wanted to have access to this money with the same ease as using a credit card I went for an account with a debit card. I opened a high interest free checking account at a local credit union. This is not the same place we have our primary checking account we use for everyday expenses though. I chose a different bank for our emergency savings for two reasons. One, I wanted to make sure the debit cards we were issued were Mastercard card since our primary debit cards were Visa. Two, I wanted to be linked to a different banking system. Both of these reasons were to ensure that I always had access to money if either Mastercard or Visa had problems or if either of the banks were having technical problems for one reason or another. After working with a credit card fraud team for some time and on the back end of a couple e-commerce websites I realized how inconvenient those issues are and how easily they can arise through no actions of your own. So far to date I haven’t had any issues getting access to my money. 

Now that we had a place to stash the money it was time to actually put some money in there. I first opened the account with $1200 we had set aside in our regular savings account. Now that I was going to only rely on this money instead of relying on this money and credit to get by I know I needed to add to this account as quickly as possible. So for a few months any money we could manage to pull out of our budget went directly into that saving account. At the time I was also working a second job to help knock out our debts too, so any money I made there went into this account as soon as we got a hold of it. This all quickly added up to several thousand dollars and now there’s even more. The funny thing is there is more money in there now than I ever had available on my credit cards.   

This new account was only to be used for an emergency and we BOTH had to agree this was an emergency. Since our marriage is based on trust and shared goals there is no issue with us both having easy access to the money. We trusted each other not to let the other down. Plus if either of us was going to screw this up it was probably going to be me.       

So at this point the only thing left to do is stick to our plan. To date we’ve not had any issues that have made me second guess this plan. We’ve traveled, we’ve rented several cars, we’ve bought things over the internet, basically we’ve have done most everything everybody swears they need a credit card but have done it with a debit card. If somebody were to steal my money or I have to disagree with a transaction (both of which I’ve had happen btw) I just grab my other debit card and put gas in the car just like you would with a credit card but without needing to pay it back next month.

To sum it all up….

1. We have more money available; like I said we have more in the account than we ever had available on our cards.
2. We now earn interest, not a lot but it is adding up. True we didn’t set this money aside for growth but it is a nice bonus to the deal.
3. We’re never owe anybody at the end of the month and if something were to self destruct in our financial lives we won’t be borrowing money at the exact time it gets most difficult to pay it back.
4. We have no need to use credit cards and no need to deal with the card companies – I don’t have any personal credit card horror stories but I sure don’t want to start any

People wonder how I can function without a credit card….I wonder why they can’t?

.

A contractor friend once told me this quote:

When you come across an electrical problem and a plumbing problem…don’t try to fix them both at the same time!

In other words don’t try to do too many things at once. I decided I would be better served by focusing on debts now which has allowed me to focus more on financing my retirement and reaching those larger goals. I once heard a story about a apartment maintenance man that bought his employer’s apartment complex with cash and managed to retire with over $3 million in the bank years later (that story could be  total B.S. but I did hear it). Well the story goes like this…He saved his butt off and even though he wasn’t making a ton of money over time he managed to save up enough dough to buy the small apartment complex he worked at and began creating some wealth. That’s pretty much the story. Instead of spending his money he saved his money and as the story goes eventually had enough dough to make a big fat real estate purchase. My guess is this person was a pretty simple dude and probably kept himself out of debt (I don’ see any other way he could really save up a ton of money like this). The obvious advantage though is that he was able to use his income to build something instead of paying for crap he bought in the past + interest.

Even if the story I heard was total B.S. the theory’s still valid. Freeing up your income by clearing your debts will allow you to stash away more money and collect interest instead of paying interest. Do that long enough and large enough and you could eventually turn that stack of money into investments to replace your income and build some wealth.  In my post I Call a Do-over I talk about some other advantages to freeing yourself from your everyday debts. As long as your income keeps going towards interest payments on credit cards and cars its going to be hard to use this money for much of anything else (it’s hard to save it if you don’t really get to keep it). So by wiping out my debts I’m now able to save and invest money much more aggressively because I actually have more available money now. 

I’m a long way from paying cash for my an apartment building but I’m a whole lot closer now that my money stays with me at the end of the month.  Freeing up my income has now given me access to the one tool I need to begin building some wealth, my income. 

If you were able to free yourself up from monthly debt payments what would you do with all that money?

Now, I always have some cash in my pocket, especially since I refuse to use credit cards anymore, but I sure as heck don’t have $3000 in my pocket very often. Since the thought of having my very own fist full of $100’s sounded so exhilerating I figured I’d give this big shot technique a try and see how it worked for me. This sounded like a logical experiment so shortly after meeting Fist-full-of-100’s Guy I withdrew my entire starter emergency fund of just over $1500.00 rolled it up and stuffed it in my front pocket. After leaving the ATM I headed over to Starbucks to meet up with a friend.  I was excited just thinking about the moment I’d get to whip that wad out of my pocket and say “I got this one.” Just like Fist-full-of-100’s Guy had done a few nights before.  So without hesitation as soon as he placed his order BAMM! The fat wad was out of my pocket and a smile was on my face. The only problem was I looked like a complete idiot bustin’ out $1500 to buy two cups of coffee. 

And sure enough the barista saw right through me. With a smirk on her face and a smart little attitude she said “Is that all you have?” Ouch! I was busted by a 17 year old coffee pusher! 

So I did my best to play it off all FinancialFreak cool and said “Why, how much do the other guys usually tip?”

All in all it was a lame experiment to roll like a big-shot but in the end I came out looking more like Al Bundy than Al Capone

How much cash do you usually carry in your pockets?

After a lengthy discussion last week explaining how you can function in the world without needing a credit card Mark decided to toss out his 3 near the limit credit cards and instead replace them with cash (well as much cash as he has once he makes his credit card payments). It’s your call as to what will work best for you and your family but for myself I’ve decided that I really saw no benefit from carrying and using credit cards in my everyday consumer life. Apparently this idea sounded pretty appealing to Mark, he called me the day after our discussion and let me know he cleaned out his wallet to make room for some cash instead. 8 days later he’s still on the wagon as he puts it. I told him he sounds like a recovering crack head, he said thats about how he feels.    

 Now I don’t think everybody in the world necessarily needs to do this (I like making money on bank stocks too) but I do think most people should dump their cards. If you ever have a balance, ever pay interest, ever pay any fees or ever pay an annual fee on your card(s) then you should consider your options, otherwise it’s costing you money.

It’s your call how you handle your money but at least think about who’s really benefiting from your use of debt.

Congrats on being 8 Days Clean Mark! You’re still a financial retard (his words) but at least your one stop closer to climbing off the short bus. congrats!

From October 2008 through April, an estimated 24 million U.S. card holders had their credit card limits reduced or accounts closed, even though they had no new “risk triggers” such as late payments in their credit reports, Fair Isaac says. Of that group, 8.5 million saw their credit scores fall.

Lenders are doing this to cover their butts, lower limits, and less risky accounts, to help ensure a predictable customer base with less loses in the future (thats the theory anyway.)

What people are whining about though is the fact that since their credit score is partially based one how much debt to available credit they have and how long these accounts have been open, they’re taking a hit to their credit scores when card issuers make these adjustments (BTW they’re allowed to make these changes according to the contracts the borrowers signed). In my post Zero Credit Score I talk a bit about how scores are calculated and how I feel about the formulas they use. The lower credit scores mean some folks may have trouble borrowing more money in the future, and if they are able to borrow they could receive less favorable rates (that could be the best thing that ever happened to some of these people!)

USA Today quotes some 62 year old lady named Reid to make their point. This is what they had to say:

Chase had closed two of her accounts, citing inactivity. Since then, four other lenders have closed or cut limits on eight accounts. One lender also more than doubled her credit card interest rate, prompting her to close the account.

Reid says the lenders’ moves have taken a toll on her credit scores.

Her FICO scores have dropped — each of the three major credit bureaus has its own FICO score — with her Experian score plunging the most, down 52 points to 722. She attributes the lower credit scores largely to lenders’ credit reductions. As multiple issuers closed or reduced her credit lines, Reid says, she borrowed from an inactive card to try to prevent it from being closed.

Wow! She sure showed them! My guess is with lenders making adjustments to six of her eight credit card accounts maybe…just maybe, she’s not as credit worthy as she thinks, just a thought Mrs. Reid.

Here is another great quote from this article:

Consumer advocates say regulators and Congress need to address lender actions that are unintentionally hurting credit scores. They say that as underwriting standards tighten, even a small change in a credit score could affect what rate consumers get on a loan — if they get one at all. Some analysts also say the fact that consumers’ credit scores can fall even if they’ve never missed a payment or exceeded their credit limits raises questions about the score’s usefulness.

Now here’s an even better plan, run to Congress to save you from the contract you signed up for! So to that I say if these folks (the companies) are making your life so darn difficult that you need to run to Congress to fix it maybe you should shut your whining pie hole and just stop doing business with companies you don’t agree with…just another thought Mrs. Reid, remember you signed the contracts. All eight of them! 

Then again maybe we can regulate the lenders out of business by taking away their ability to remain profitable, then throw an even bigger fit when they lay people off and we get to bail them out again.