11 April 2008 No Comment Print This Post  Email This Post

There seems to be a belief that credit cards are outright evil. I’ve heard interest described as a tool of the Devil and lenders…well, money lenders have pretty much had a bad reputation throughout history.

But, honestly, most credit card companies aren’t out to ruin lives. While I would never dispute that there are plenty of companies out there that really are predatory, that’s not actually the goal of most creditors.

Credit is a good thing. The idea that, if you are willing to pay a bit more over time, you can get a house or equipment or whatever can truly be a benefit. Credit is what allows new companies to get off the ground before they start making money.

The real problem is not predatory creditors. It’s an issue of creditors knowing that it’s usually better for both borrower and lender in the long run if the borrower can get credit. It seems to be an everybody wins situation: everybody but the borrower earns money on the deal, and the borrower gets a house or a car or whatever. The system breaks down when someone pushes it too far.

I think most people have a pretty good idea of just how far their income stretches. They’ll try to go further, and then we wind up with a sub-prime mortgage mess — for instance. I know that more than a few people with sub-prime mortgages were actually surprised that they had the credit to buy a house. One of my friends went house-hunting a little over two years ago with the understanding that his parents would help out with a significant chunk of the down payment. We’re talking a guy out of college only a year or two with a decent, but not great job, minimal savings and practically no credit. On what seems to be a whim, he went ahead and filled out paperwork for a mortgage based solely on his information. The bank offered him a mortgage requiring no money down. He was amazed that they’d offer him that much credit.

But too many mortgages to guys like that and the odds of one (or more) defaulting and the system stretches too thin. Same thing can happen with any other type of credit, and some how the creditors always wind up looking like the bad guys.

I get plenty of credit cards in the mail and, yes, I run them through the shredder. But I still have my own credit cards and I use them. Credit is a useful tool, as long as you take the time to use it properly.