Obama Going After Credit Card Companies?
In an article at CNBC today, it was discussed that President Obama and his economic team will be analyzing practices of credit card companies in the upcoming weeks and months. The primary practice that credit card companies engage in that upsets most financial and governmental personnel relates to their sometimes deceptive marketing practices. Larry Summers has been quoted saying that certain deceptive marketing practices have made a society addicted to credit, specifically when it comes to credit card purchases.
I think there is a place in each family’s financial picture for credit cards, and certain financially savvy individuals actually game the system by using 0% APR introductory rates, cash back rewards, and cards that give you points for purchases in which you can redeem for travel rewards, goods and services, etc. BUT, this is really only for financial savvy individuals and ones who are able to pay the entire balance of the card on a monthly basis, so that they are not paying interest to the credit card company on a monthly basis. I would really only recommend credit card purchases for small one-time emergencies (auto mechanic fix, for instance) that can be paid off when your bill is due. The credit card should NOT be used as your “emergency fund” for if you lost your job and needed to finance your lifestyle until you found a new job.
It is very difficult to fully understand credit cards. Most people are inundated with credit card marketing mailers on a daily basis, and the fine print is exactly that…fine print. Please, always read the fine print, especially related to annual fees and interest rates. Not only the introductory rate, or the balance transfer rate, but what is the rate going to be in the future, say…9 months from now?
Credit cards can affect your FICO score as well. Opening a credit card, using it, and paying it off each month is actually beneficial to your credit score. Keeping high balances on your credit cards is not good. Opening multiple cards is not good (don’t get me started on department store credit cards). Closing cards, fascinatingly enough, is also not good.
Some good references for credit card information:
That’s all for now…
MF
About the Author: Mike is the founder of this site, www.mikefanelli.com He has extensive professional experience in accounting and financial analysis, and is currently a licensed CPA in the state of North Carolina.
