Every once in a while it’s important to take a moment and give yourself a little reality check, especially when it comes to the world of personal finance. I think it’s about that time. What you’re about to read is going to come across as coarse, but you need to hear these things in an unvarnished manner.
Here are four things you probably don’t want to hear about credit — but you should.
1. Banks are not your friends so don’t expect them to act like they are
Bank of America recently announced plans to implement a $59 annual fee on about 5% of their cardholder accounts in April. The reaction was swift and emotional. OUTRAGEOUS, ILLEGAL, IMMORAL!! One reader even called them “mean spirited,” yet a $59 annual fee is 16 cents a day. It’s less than you spend getting your hair done, going out to dinner, running up a bar tab, etc. In the grand scheme of things, $59 is a drop in your bucket.
It’s clear that many of us have unrealistic expectations when it comes to banks and credit card issuers. These companies are FOR PROFIT organizations. That means they’re in it strictly for the money, your money. They don’t care about your personal situations, they don’t care about your excuses, they don’t care that the dog ate your checkbook. They want to be paid, they want to make money, they want to make MORE money and they want it to come from YOU. The sooner we stop thinking about banks and credit card issuers like we think of our family and friends the better off we’ll be. And finally, if you don’t like annual fees, take your business elsewhere.
2. It’s your job to choose good bank products
Let me repeat that; it’s your job to ensure that the credit products you choose are actually good products. DYODD = Do Your Own Due Diligence. I have a friend who sends me stock tips from time to time and he always ends his emails with DYODD. What that means is “Don’t complain if you buy a dog.” That same acronym applies to bank products.
If monthly fees are going to be offensive to you, don’t choose pre-paid debit cards. If annual fees are going to bother you, you probably shouldn’t open a credit card because there’s no guarantee that your “no fee” card won’t have an annual fee next year. If a $5 ATM fee is going to infuriate you, don’t use that bank’s ATM machines. And finally, if paying interest is going to drive you crazy, don’t revolve balances. Avoiding offensive bank products is actually quite easy.
3. Getting into debt was your choice
I know, I know… you didn’t ask you to lose your job and you have to survive and credit cards are your only way to pay. That’s a reasonable, in not fully acceptable, excuse for being in debt. But, “The banks kept giving me more credit cards” is not. In general, pulling out that little piece of plastic and swiping it is a voluntary act, regardless of how or why it got in your wallet. If you don’t want to get into debt them don’t use credit. Trust me, I’m fully aware that some people are addicted to credit cards. For those people, avoidance is the right strategy — and you know that was hard for me to write.
4. Credit is a privilege, not a right
This has to be my favorite one. How many advertisements for credit (and insurance) have you seen or heard with this tagline… ”get the savings you deserve?” I can assure you that no bank or insurance company believes that you “deserve” anything. Further, if you want to do business with them then you’ll have to earn the privilege of doing so.
You don’t deserve a card, a mortgage loan, a car loan, or any other credit related product. Remember, at the end of every dollar you borrow from a bank there’s an investor. That investor might be the Federal government, a hedge fund, a pension fund, a non-profit organization, or a consumer.
Every single entity on the “lender” end of the equation has a right and obligation to ensure that whoever they’re letting borrow their money is going to pay it back. It’s because of that obligation that there’s a hurdle between you and their money. That hurdle has gotten harder to jump over during the past few years, which is probably not a bad thing.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger forMint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. The opinions expressed in his articles are his and not of Mint.com or Intuit. Follow him on Twitter here.