Credit Where Credit's Due

This morning, CNN Money posted an article regarding this year's most popular credit card.  For the past seven years, American Express earned that distinction, but now it has to share the honor with Discover (my family has been a loyal to Discover since its first national roll-out campaign in the mid-80s). Not surprisingly, the CNN trolls (the commenters with more opinions than knowledge) chimed in on the subject of credit cards, but they were immediately shut down at every post. Two trolls in particular stuck out. One compared credit cards to a layaway plan, insisting that people who can pay off their monthly amount were better off using cash, and the other said credit cards were the shovel you use to dig your own financial grave.

I will discuss the first commentary in a moment as it was more relevant, but the second comment stuck with me because it was the perfect test for a hypothesis I had a few weeks ago. Imagine how much more agreeable we would be if we used first person in place of second person in our comments. For example, if that CNN troll had instead stated “credit cards were the shove I used to dig my own financial grave,” it would inspire more empathy instead of the barrage of defensive outrage (though, for all I know, outraged replies may be the gold that trolls treasure in the first place).

A lot of media outrage has been generated over the years about credit cards. Some of it is warranted, especially the predatory methods some companies used targeting fresh-faced college students who were falsely assured all their efforts today would be rewarded later, so they decided to spend a blue streak today, driving themselves into those aforementioned financial graves later.  There was also a slew of good, old-fashioned stupidity involved in consumer credit abuse, as the first comment mentioned, such as using credit cards to buy things now to pay off slowly.  Aside from the extraordinary fees charged for that irresponsible behavior, I still believe the resulting sensation of depression it can cause is more costly.

Personally, I got my first credit card as soon as I moved out to Arizona. It was through MBNA, which was a highly rated credit company until it was bought out by a highly disparaged credit company several years later. My credit card limit started at $3,000, and within a few years, it became a platinum card with an exponentially higher limit (as you may expect, that change occurred with the change in companies). I was offended by the increase, fearing that I would be more of a target for credit fraud, so I stopped using the card. In reality, the more unused credit you have in your name, the better it is reflected in your credit score. Canceling the card was a mistake, which may adversely affect me in the future.

Regardless, I was excited to apply for a Discover card to replace my Platinum card. Truthfully, Discover popularized the rewards gimmick that is an unspoken obligatory offer in every credit card today. The CNN troll who incorrectly stated that credit cards are mostly used for layaway purchases further defended her point by saying that the consumer is charged for those rewards vis-a-vis the monthly interest rate (finance) charges. Once again, her information was warped by the media-hyped fear mongering, and clearly not by personal experience.

In keeping with my previously mentioned “first person” theory, by paying off my credit card balance each month, I am not assessed a finance charge. I will still benefit from all the rewards though (and the credit card company still comes out ahead in the game) because those rewards are generated by the fees that credit companies charge the merchants. Truthfully, we are a society so grounded in credit that it is difficult for small businesses to survive without accepting credit. There are a few restaurants that I do not frequent simply because they do not accept Discover (and a few others that I never visit because they do not accept any credit).

Credit has gotten a bad wrap (for some good reasons) over the past few years, but the simple truth is that there is a way to use credit cards properly and responsibly, and the totality of those benefits is better than strictly hailing to the King (BTW, “cash is king”).