This catchy little phrase is used by Capital One in their television advertisements. This basic question is designed to make you switch from your current credit card to a Capital One credit card because of all of the benefits they provide. I came across an article on MSN Money detailing the impacts of having a credit card that is never used. The author Jeremy M. Simon of CreditCards.com (not surprisingly) discusses why you should keep that unused account open and why you should start using the card. He begins his answer by saying “If your primary goal is maintaining your credit scores, you should leave that extra card open — but not unused.”

My question is why should our primary goal be maintaining our credit score. Shouldn’t our primary goal be something like, providing for my family in case of emergencies? or meeting the daily needs of my family without having to borrow money? In the article, one of the reasons for keeping the card open is for emergencies. I understand the emotional aspect of having a credit card for emergencies, but not the logic. If you have an emergency that you can’t cover with available finances, how does going into debt make sense?

The article continues by giving an example of debt-to-credit ratios, and shows how closing an unused account would drive that ration up. Being a math guy, I can agree 100% with the mathematics of the statement. However, there is more than one way to lower the debt-to-credit ratio. Ready? Pay down the debt! That’s right, you could leave unused cards open, or pay down the debt. As a matter of fact, if you pay off all of your debt, you could get rid of the credit cards and not impact the debt-to-credit ratio, because with zero debt, you won’t have a ratio.

Finally, the author at the very end of the article includes this statement “If you’ve been a responsible borrower, it’s unlikely that an account closure would have much impact.” The truth is maintaining your credit score has more to do with not carrying debt and when you do, making payments on time. Personally, I still like the cash system for most day-to-day expenses. It may not work for everyone, but it does for us.

With the passage of the new Credit Card Accountability Responsibility and Disclosure Act of 2009 also known as the Credit Cardholders’ Bill of Rights Act of 2009, the Obama administration is being hailed as the savior of the little guy. President Obama wants to ensure that people use cards wisely and the card holders behave in a responsible way. From an MSNBC article:

The president noted that nearly half of all Americans carry a balance on their credit cards, and that their average balance is more than $7,000.

“So we’re not going to give people a free pass, and we expect consumers to live within their means and pay what they owe,” Obama said. “But we also expect financial institutions to act with the same sense of responsibility that the American people aspire to in their own lives.

So the average balance being carried is $7,000? That doesn’t sound like people are living within their means. If they were, the balance would be a lot closer to $0. Let’s look at some of the new changes and evaluate their impact on the average family.

• Limited interest rate hikes – Increases in your interest rate can only occur on new balances after one year. Also, existing balances aren’t subject to rate increases except in the case of promotional or introductory rate expiration or the holder misses a payment.
• More time to pay monthly bills – Credit card companies will have to provide at least 21 days from the date the bill is mailed before the payment is due. In addition, they can no longer have payment due on holidays or weekends.
• Highest interest balances paid first – Usually, cash advances taken on the card carry a larger interest rate than a normal purchase. Now, any amount received over the minimum payment, will have to be applied to the balance with the highest interest rate.
• Limits on over-limit fees – Credit cards have spending limits attached to them. So what happens if you try to buy something that would cause you to exceed the credit limit? Depends on your card. Some cards would simply be declined, others would allow you to purchase the item, but you would be charged an over-the-limit fee. Now, card holders will have to ‘opt-in’ to over-the-limit fees. If the card holder declines to ‘opt-in’, then the card purchase will be declined.
• No more double-cycle billing and lower subprime fees – Finance charges will only be calculated based on the purchases made during the current billing cycle and not the previous. This will help those that don’t carry a balance on their credit cards. For people getting a subprime credit card, the ‘origination’ fees are limited to 25% of the account balance.
• Minimum payments – Most people know that by paying minimum payments it will take years to pay off the entire balance. Now the credit card companies will have to disclose the consequences of making only minimum payments. They will also have to detail the amount card holders need to pay, if they want to pay off the balance in 12, 24 and 36 months.

As long as credit card companies are allowed to charge interest on unpaid balances, which they should be allowed to do, there will be people who will get in trouble using credit cards. The only way to prevent credit card abuse is to not give credit cards to people that shouldn’t have them. The real big change in this law is the removal of the Universal Default clause, and that appears to be offset with new fees that will still be passed down to the consumer. The proposed changes won’t force card holders to use their cards wiser, but it will force the card companies to introduce new fees, that will flow down to all users, simply to implement all the changes.

The moral of this story? When the government claims that it is going to help, you might want to decline the offer.

President Obama is poised to sign a new credit card consumer protection bill into law as early as this week. The new bill is designed to provide some relief to the American consumer during this time where many are dealing with a loss of job or decrease in hours. In what appears to be a slam dunk, this bill is being hailed as another way the government is looking out for the average citizen.

“This is a victory for every American consumer who has ever suffered at the hands of a credit card company,” said Sen. Christopher Dodd, D-Conn., chairman of the Banking Committee. The bill passed the Senate 90-5.

In addition to limiting excessive fees and out of control interest rates, the new law will force credit card companies to make several changes to the way they do normal business. If signed into law credit card companies will have 9 months to:

• post their credit card agreements on the Internet
• provide ways for customers to pay their bills online or by phone without an added fee
• provide 45 days notice and an explanation before interest rates are increased.

The biggest problem I have with the bill is that it is basically trying to legislate common sense. Using a credit card can be dangerous and many people who have them really shouldn’t. Another aspect of the bill will require that some sort of evidence be provided that shows you really can make your payments.

the Senate bill requires those under 21 who seek a credit card to prove first that they can repay the money or that a parent or guardian is willing to pay off their debt if they default.

If you can’t pay back the debt, then you have to have a parent or guardian that will pay it off for you? Basically, you need to find someone that will cosign your application and bail you out, if/when you prove that you are not capable of paying back what you borrow. How silly does this sound? If they are going to revamp the credit card industry, why don’t they simply prevent those that shouldn’t have a credit card from getting one? The idea of getting someone to cosign your application is a lot like getting someone to cosign a loan. The bank knows you won’t be able to make the payments, so they require that someone agree to pay it back for you. Not only does this not make sense, but Biblically speaking it is wrong.

We used to teach our kids to take responsibility for their actions. Now we are about to pass a law that forces the credit card companies to make it easier for you to not take responsibility. I am all about helping people get out of their financial mess, but I believe we should be teaching people to budget, save and repay their debt instead of easing the consequences of years of bad decisions.