| Need a credit card? No problem! And that's | | | | but the credit card industry finds a way to profit |
| exactly the problem. In a nation where instant | | | | from these most needy of borrowers.Unlike |
| gratification is touted as a virtue, credit is available | | | | "secured" credit cards, cards offered to subprime |
| to anyone no matter what their credit history. | | | | borrowers require no security deposit. Credit limits |
| This is causing personal and financial problems for | | | | start out very low -- initially in the $100 to $500 |
| many consumers who abuse the easy availability | | | | range. However, fees can be hundreds of dollars |
| of credit and find themselves unable to pay back | | | | and interest rates can easily soar to usurous |
| their loans.There was a time in history when | | | | rates of 30% or more.The industry also offers |
| extensive credit was available only to the | | | | "secured" credit cards to offer high-risk |
| aristocracy, and debt carried a social stigma for | | | | customers. Borrowers are required to pay an |
| anyone else. The poor and middle class were | | | | up-front security deposit from $99 to $5,000 to |
| carefully scrutinized when they applied for loans, | | | | serve as collateral in case of default.Many social |
| and debtor's prison awaited those who did not | | | | and business commentators have denounced the |
| repay their debts.Americans are more indebted | | | | subprime lending business for exploiting the poor, |
| than ever in the nation's history. The amount | | | | comparing the industry's problems to |
| owed on loans for cars, homes and credit cards | | | | depression-era banking scandals. Lenders take on |
| adds up to nearly 100% of annual after-tax | | | | poor and desparate customers at their own risk, |
| income, according to a report in Business Week | | | | writing off losses in the 15% to 17% range, |
| magazine. Yet, according to the Consumer | | | | versus the average industry loss rate of 6.5%, |
| Fedaration of America, this alarming level of | | | | according to CardWeb. The delinquency rate |
| indebtedness has not deterred the moneylenders: | | | | among subprime card issuers is 10%, twice as |
| credit card companies have more tha $3 trillion of | | | | high as the industry average. Some credit card |
| unused credit lines up for grabs, approximately | | | | companies, such as NextCard, have been unable |
| $30,000 per | | | | to recoup their losses and have closed up |
| American family.According to Fair, Isaac and Co. | | | | shop.According to many pundits, the American |
| (FICO), the average consumer has access to | | | | economy has been thriving in the past 5 years, |
| $12,190 on all credit cards combined. Not everone | | | | with a steady growth in the GDP. However, 90% |
| is a spendthrift: more than half of cardholders use | | | | of this growth has been due to the housing |
| less than 30% of their total credit limit. However, | | | | bubble; real wages have declined by 4% since |
| one in eight is using 80% or more of their credit | | | | 2000 while health costs have risen by 40%. Middle |
| limit, and 1 in 10 have a total debt greater than | | | | and lower class Americans are becoming |
| $10,000. estimates that 20% of American credit | | | | increasingly financially squeezed and unable to pay |
| cards are maxed out.There are specialized credit | | | | their debts.A record number of 1.3 million |
| cards being offered to all kinds of borrowers, | | | | cardholders filed for bankruptcy in 2004. In |
| from students to small business owners. Each | | | | response, the credit industry lobbied successfully |
| demographic group is targetted with a specific | | | | for stricter bankruptcy laws. However, according |
| sales pitch.People with good credit ratings can | | | | to the Consumer Federation of America, the |
| easily access lines of credit at an interest rate of | | | | increasing incidence of loan defaults did not spur |
| 5% or less over the current prime rate, and such | | | | the card companies to become more |
| applicants are also qualified for Platinum credit | | | | discriminating in their choice of customers. In fact, |
| cards. However, about half of cards in circulation | | | | they actually boosted their promotional campaigns |
| are Gold cards, which require just $10,000 in | | | | to a record 5 billion solicitations ( approximately 50 |
| annual income for qualification.The credit industry | | | | per American household) compared to 3.5 billion |
| uses credit scores to divide potential customers | | | | the previous year, many of these ads targeting |
| into "prime" and "subprime" markets, referring to | | | | the sub-prime market.Now consider the debit |
| the prime interest rate set by banks. Elite | | | | card: it is decorated with the Visa or Mastercard |
| borrowers can obtain a line of credit on a Platinum | | | | emblem, and has all the functions of a credit card |
| card at an interest rate around 12%. A Gold card | | | | in that can be used at a cash register and for |
| carries an average interest rate of 15%, while a | | | | internet and telephone purchases. However, it |
| standard credit card charges rates around 17%. | | | | takes money directly out of the cardholder's bank |
| Then there's the subprime market, which first | | | | account and allows no more spending once the |
| emerged in the 1990s, dealing with consumers | | | | account is empty. A debit card has no monthly |
| whose credit scores are 500 or less, little or no | | | | fees and no interest charges, and no chance of |
| credit history, those emerging from bankruptcy | | | | getting into debt. Perhaps this is the best |
| and anyone with an inconsistent performance in | | | | consumer solution to a credit-mad economy.J |
| managing credit. These people are often low | | | | Shipper is interested in credit. |
| income earners and/or poor money managers, | | | | |