Sunday, March 4, 2012

Orchard Bank Credit Cards

Getting or having a credit card is no big deal - nor is it desirable.  Some people are so desperate for a credit card, they will do anything.  This is a very bad idea.

In the SPAM folder today, a note from "Orchard Bank" that I have been pre-approved for a Platinum card.  You have to wonder about a bank that pre-approves people they don't even know.

What is this, a scam?  A rip-off?  A con?   Well, today, anything short of sticking a gun in someone's face and demanding money is basically legal (disclaimer: sticking a gun in someone's face is legal in Texas).  So yea, they are above-board in terms of today's laws.

But 50 years ago, they would be accused of usury or loan-sharking.

The credit card is run by HSBC, and offers people with horribly bad credit a chance to get a credit card, with the promise of "rebuilding" their credit.  Of course, if you've destroyed your own credit rating, borrowing more money is not likely to help.  Time is the great healer of all wounds, and getting a toxic-rate credit card is probably a bad idea.

To begin with, there are a lot of fees tacked onto the card - a fee to get the card and an annual fee to have the card.  And the credit limits are pathetically small.  Paying a $79 annual fee for a $300 limit card is kind of ridiculous.  And the interest rates are pretty astronomical - 14-30% or more.

Still, this is better than some of these rip-off rate credit cards which have interest rates higher than 50%.   You read that right, 50%.

What would cause someone to be so desperate to have a credit card?  It makes no sense.

One writer opines that immigrants, students, and people with bad credit histories could use such cards to "build up" their credit - as if having a good credit rating was like going to the gym and working out with weights.  The more "reps" you do, the bigger your financial muscles will be!  Spend, Pay, Repeat!

Actually, not.

You see, your ability to get credit depends on two major things:  Your wealth and your income.  If you have a low-paying job, no one is going to approve you for a $50,000 car loan, at least not on very good terms.  And likely, you will default on such a loan and end up with "bad credit."  Simply stated, your income determines, more than any other single factor, how much you can borrow.

A better approach is to stop borrowing so much and worrying about your credit rating - and stop thinking of credit as the only way to live and to own things.  The more you buy into this concept, the worse off you will be, financially, emotionally, and even physically.  Financial stress leads to mental stress, which leads to physical stress.  A new car ain't worth a heart attack or ulcers.

Stop playing their game and play your own.  Obsessing about credit score is another example of faux financial acumen.   And it is funny to me that the people who obsess about credit score the most are the ones that fuck it up so badly all the time.  If this is so damn important to you, then pay attention to it, eh?

But if your income sucks, you can "go to the gym" all you want with these stupid credit cards and you still won't qualify to borrow much money, PERIOD.

Second of all, having wealth is far more important than having good credit.  Having money in the bank is better than an 800 score, any day.   And if you have money in the bank, you don't need a credit score.  So, rather than obsess about "building up credit" so you can buy a brandy-new spanking car, just drive an older car, pay cash, have money in the bank and be happy.  Only poor people and idiots chase after new cars.

Over time, your credit score will improve, if you have a bad credit history, as bad credit items fall off your report.  But it can take a long time, and you really can't jump start the process by borrowing more.  And in the interim, you can open a bank account and get a debit card and use that, in place of a credit card.  They take debit cards at all the same places, and there are no annual fees, interest charged, and most importantly, you can't spend more money than you have.

If you have no credit history, people will offer you credit - don't worry about that.  This is America - we offer people's PETS credit cards.   The problem is, the more and more debt you take on, the worse off you will be.  So it pays to be selective about who you accept credit offers from.   You are not "lucky" to take out a loan - they have to be paid back.  You are not "lucky" to be approved for a credit card.  They are lucky to have you.  Be picky.  Don't sleep with the first person who agrees to have sex with you - Rush Limbaugh will call you a slut!

Now, some folks argue that you should get a department store credit card and buy something small, like a dress or tires for your car, and then pay off the balance and be done with it and that this will "establish credit."  That may be fine and all, but what usually ends up happening is that you buy more than you can pay off in one month, and these types of cards (such as at Sears) have fairly hefty interest rates.

But there is no reason to pay a fee to a bank to get a card and keep it, if "building credit" is your goal.  Shop around and get the lowest interest rate you can, with no fees and then treat the damn thing like the loaded handgun it is - ready to go off and blow your financial brains out.  And keep the credit limit LOW - like $5000 or less - far less.  There is no reason whatsoever to have a 15% credit card with a $20,000 limit.  You will rack it up, over time.

And if you have destroyed your credit, through bankruptcy, judgments, unpaid bills and the like, getting some expensive credit card is not going to "fix" things for some time.  Why?  Because all that bad shit appears on your credit history for years and years.  Decades even.

For example, on my credit report is a "FIRST USA BANK" credit card that I apparently obtained in 1989.  According to Transfirst, this item will remain on my credit report until February 2014 - a decade after the last status change on the account.  It is a good thing it is listed as "Paid.Closed/Never Late" - isn't it?

Similarly, we have  Citibank Card, opened in 1985 that will appear on a credit report until 2016.   That's over 20 years!

So, getting a crappy high-interest, high-fee credit card, and trying to pay it on time to show you have become a reformed man is sort of a flawed idea, on two grounds.  First, you are a deadbeat.  Your credit history says so.  Just own that and move on with life and switch to an all-cash basis.  It will be cheaper in the long run.  Odds are, if you try this 30% credit card deal, you'll screw that up, too, and then be royally fucked.  Just own up to your own weaknesses.  It is like an alcoholic trying to "drink responsibly" - we all know how that works out.

Second, all that bad shit on your credit history isn't going to evaporate overnight, just because you signed up for a Desperate Chump Bank Credit Card.  It will still be there and it will far outweigh any "good" credit value you get from paying off the new crappy card regularly.   In order to qualify for "good credit" deals like these 2.9% car loans, you need a near-perfect credit score - like 770 or higher (and it don't go much higher!).

It is not like grade school, where you can scrape by with a C-.  There are honor students and then there is bad credit.   There are few shades of grey here.  And if you have bad credit, then the best thing you can do is stop borrowing because the credit deals you will be offered will be the worst in the world.

I wish I could say it wasn't so.  Our system seems harsh and unfair.  The rich are offered the best deals and get richer.   The poor are offered the crappiest deals and get poorer.  And whether you are a small business or an individual, if you get into a small amount of financial trouble, the system is designed to turn that into a large amount of financial trouble.  Loans get called, penalties are applied, default interest rates and late fees kick in, to the point where one bounced check and one missed payment starts a financial avalanche that ends up in bankruptcy court.

Most people don't see this, of course.  They are paying all their bills and think they are doing fine.  But their carefully balanced financial planning is just one mis-step away from disaster.   But more about that in another posting.

You can't eat your way to slimness.   You cannot spend your way to wealth.   You cannot borrow your way to a high credit score.    It seems pretty obvious, but most people believe just the opposite.

My credit score?  It is high - over 800.  Why?  Because I have no debts and paid off all my loans.  That really is the only way to have a super-high credit score.   You aren't getting there from bad credit and crappy credit card.

But if you asked me two years ago what my score was, well, that would have been a different story.  I was heavily in debt, and while "current" on all my obligations, the amount of debt I had was dragging down my score.  It was still "good" - although I might not have qualified for one of those come-on loan deals from the car dealer (good thing I didn't want one!).

The old axiom is true - to borrow money, you first have to prove you don't need it.  People who desperately want to borrow money are setting themselves up for a big fall.  And rarely do they really need the money - they usually just want it to buy things they really don't need.