FICO, FICO un day

The Associated Press apparently frowns on bloggers linking to AP news articles and quoting the first paragraph in its entirety. I'm about to do just that. It's unavoidable in this instance, since my whole point in linking to this AP story by Christopher S. Rugaber is to note that it's inaccurate, insulting and full of misplaced condescension, beginning with the very first paragraph:

Americans can save billions of dollars annually on credit card and other interest payments by raising their credit scores, but many consumers still don't know enough about the complex numerical values that represent their credit risk.

Rugaber is certainly correct that Americans need to know how credit scores work. The ability to manage these "complex numerical values" is a vital and necessary skill for anyone with money in the bank, or a mortgage, or a car loan, or car insurance, or health insurance, or a job. Not knowing exactly how credit scores work will cost the average American hundreds of dollars a year in fees and interest, sometimes invisibly.

Pop Quiz: Following are two possible explanations for why most Americans are in the dark about the meaning and manipulation of credit scores. Which do you think is more important?

A. We Americans are lazy and ignorant people who can barely manage to feed ourselves unless tut-tutted and prodded by parental figures like Christopher S. Rugaber for our own good.

B. The calculation of credit scores is a protected trade secret, proprietary information closely held by the triumvirate of Transunion, Equifax and Experian, and therefore, legally, by definition, such information is unknown and unknowable by anyone not working for those unelected entities, including you, me and every personal finance reporter in the business including Christopher S. Rugaber.

Rugaber's article presumes A as the only possible explanation for why most Americans are unfamiliar with how credit scores work. Explanation B -- that this information is legally, officially and emphatically kept hidden from consumers -- never enters his article or, apparently, his mind.

The article passes along some of the hints, guesses and inferences that we the public have been able to figure probably help to improve credit scores -- don't max out credit cards, "avoid opening multiple new accounts quickly, and pay off debt rather than moving it around," don't miss monthly payments, etc. But these are all just guesses. How exactly all those things affect our credit scores isn't something we're allowed to know.

Lenders and debt merchants are in the same boat as the rest of us. They don't have access to the extra-constitutional triumvirate's top-secret proprietary information either. But credit-card banks and mortgage brokers and insurance companies and auto lenders have more time, resources and incentive than consumers do for probing the mysteries of these all-important formulae. They've pieced together enough of the puzzle that they've gotten quite skilled at manipulating this statistical game to their advantage.

Rugaber notes, for example, that "credit card issuers ... have recently cut limits on many cards as financial institutions seek to reduce their credit risks." Limiting risk is one explanation for this step. An additional explanation is that this step alters borrowers' "utilization rate," and the cabalistic scholars of credit scoring at these institutions have determined that higher utilization rates make for lower credit scores, thus providing a quantitative fig-leaf for aggressive increases in fees and interest rates.

Here's how the scam works. You've got a $10,000 limit on a credit card and you're carrying $2,500 due to a recent dental procedure. The lender, in the name of reducing risk, abruptly reduces the limit on your card to $4,000, announcing this change on page seven of the nano-type in a booklet mailed with your next monthly bill. Now instead of a 25-percent utilization rate, you've got a 63-percent utilization rate (they round up, when convenient), lowering your credit score.

That lower credit score means you no longer "qualify" for your previous rate of 9.9 percent and will now be paying 19.1 percent. Oh, and there's a one-time fee of $35 dollars, conveniently added to your existing balance, for exceeding 50 percent of your available limit.

Unfortunately for you, these changes in your balance and rate became effective at 9 a.m. on the 15th of the month. Your electronic payment, dutifully set for the previous minimum payment, is credited to your account at 1 p.m. on the 15th. That minimum payment was based on the earlier interest rate, so it's no longer adequate to cover your newer, higher minimum payment. A $35 late fee is therefore added to your balance and this delinquency is reported to the triumvirate, contributing to the further reduction of your credit scores. Second verse, same as the first.

For a heartbreaking, in-depth look at the end result of this process, see Gretchen Morgenson's article, "Given a Shovel, Americans Dig Deeper into Debt," in Sunday's New York Times. The headline writer there was drunk with the same condescension that ruins Rugaber's AP article, but Morgenson's piece itself provides a much more rounded and accurate picture.

Rugaber is certainly right that consumers need to be better informed about this. But his article seems to assume that it might be possible for consumers to compete with the debt merchants on a level playing field. As though the average person has the same kind of time, resources and expertise as those institutions do. As though the game wasn't rigged. As though we must simply, passively accept the unchecked, unregulated and unrestrained influence of the unelected triumvirate to dominate our economy and our lives.

Americans don't need yet another lecture from yet another personal finance reporter. Americans need torches and pitchforks.

Comments

[Geds]

Americans don't need yet another lecture from yet another personal finance reporter. Americans need torches and pitchforks.

I tried to buy some, but apparently I was maxed out...

[pharoute]

It's a shame that personal finance reporters are not actually on "person" side of the issue. A smaller parallel to why there is a "business" section in the newspaper but not a "labor" section.

[SchrodingersDuck]

I've known people who've worked in the credit scoring industry, and they've said that some of the conditions behind the scores are very arcane. Even just getting a credit check can push the score down, whether or not credit is actually taken out - the logic being that the best person to sell credit too is the person who doesn't need it, which is one of the reasons why wealthy middle-class people can get mortgages cheap while the poorest people have to pay extortionate interest rates.

So if you go to a shop to buy something that requires a credit check - say, a mobile phone - then regardless of what happens with paying for the product, your score takes a hit. Even if the credit check was unnecessary and no credit was ultimately used, you'll drop points. It's not a massive drop, but if there are several in short period, the scorer will assume that you've been looking for credit and been declined, and may take a larger bite out.

[Jake]

Oh, and there's a one-time fee of $35 dollars, conveniently added to your existing balance

You have *got* to be kidding me. Every day I give thanks that I don't live in the USA. It's shit like this (plus the lack-of-health-care system) that's the reason why.

[LL]

I'm doing OK financially, but I am getting sick of being lectured about finance by the govt. (which gleefully puts all of us into enormous debt without our consent) and the banking industry, which invested in mortgage securities at a time when anyone with a brain could see that wasn't smart. When all these assholes stop squandering billions of dollars as a result of poor financial decisions, I'll consider listening to their advice.

And yeah, the credit industry is a giant scam.

[rm]

Given a Shovel, Americans Hit Their Credit Card Companies Over The Head and Bury Them in a Shallow Grave.

Unfortunately, companies can't be done away with in that way.

"What's the robbing of a bank compared to the founding of a bank?" -- Bertolt Brecht

"But now,/ Against a pirate called/ THE NATIONAL CITY BANK/ What can you do alone?" -- Langston Hughes

[pharoute]

Found this via The Sideshow: Bill Moyers and usury

SchrodingersDuck @ 7:25 Even just getting a credit check can push the score down, whether or not credit is actually taken out - the logic being that the best person to sell credit too is the person who doesn't need it, which is one of the reasons why wealthy middle-class people can get mortgages cheap while the poorest people have to pay extortionate interest rates.

So if you go to a shop to buy something that requires a credit check - say, a mobile phone - then regardless of what happens with paying for the product, your score takes a hit. Even if the credit check was unnecessary and no credit was ultimately used, you'll drop points. It's not a massive drop, but if there are several in short period, the scorer will assume that you've been looking for credit and been declined, and may take a larger bite out.

I've heard this practice causes problems for job applicants, since so many employers these days are utterly enraptured with credit checking their prospective hires. I guess if enough employers made enough checks, it could really hurt your rating....thereby making you a less appealing candidate for some jobs. What a racket.

[Caravelle]

Americans need torches and pitchforks.

Yay !

You have *got* to be kidding me. Every day I give thanks that I don't live in the USA. It's shit like this (plus the lack-of-health-care system) that's the reason why.

Totally. Thoughin I'd like to know more about the subject so I can know how likely this is to cross over to my country. Is it just a business practice waiting to be adopted, are there key laws in the way, is there a lobby trying to repeal those laws ? I've got no idea but I wish I did.

I'm very happy with the bank I've got right now though, so crossed fingers...

[Jenny Islander]

I used to think that a credit score measured reliability, so for that and other reasons, I diligently made extra payments on my student loan. Sure, it meant tightening my belt in the short term--extra payments come off the end of your loan term, not the middle--but I liked to think of the good credit I must be piling up on those thousands of dollars. And I carefully paid my phone bill, my utility bill, and my rent on time as well.

Then my husband and I bought our house. And I discovered that I had no credit rating. Not a low credit rating--no credit rating. Because none of those canceled checks counted.

In order to get a credit rating, I was told, I had to get a credit card. And to get a credit card, I had to put a $500 deposit down at my credit union for a secured card--because I had no credit rating. Or I could buy the car that I did not own already because I didn't need one.

Because somebody who meets all of her obligations and even exceeds them is not reliable, but somebody who is willing to take on a high-interest revolving loan for nothing in particular or commit to paying for a multi-thousand-dollar item she won't be using is? Zeeky boogy doog, head asplode.

[not_scottbot]

For some nice information, and even reasonably interesting comments, concerning the article, check http://calculatedrisk.blogspot.com/2008/07/duelling-discourses-of-debt.html

Full disclosure - I have never had a credit card, have never used debt to ever pay for anything, and I do post under another name at that forum.

[Rich Sam, Poor Sam]

Yes, Americans, heed what Fred is telling you. Can't get more credit? It's a conspiracy, turn on the banks and raze them to the ground. Can't afford to pay for all that cool stuff you keep buying? Well that's hardly your fault is it, march on Washington. If you work hard at it, you can help to wreck the economy, in a sort of childish fit. Like sticking something so far up your nose it won't come out, then your parents will have to take you to the emergency room instead of being selfish and trying to spend five minutes together without you...

If you have a $2500 on a credit card and you're not paying it off (the minimum payment typically won't pay it off for many years, effectively never) then you don't need to learn secret hidden wisdom of FICO scoring, you need to go back to high school maths and pay more attention in the class on compound interest. Now, maybe US banks aren't required to put "Warning: Making the minimum payment every month will cost you more", in the same way that poor countries don't always have those "Danger High Voltage" signs on their high tension pylons. But you shouldn't need this reminder. High tension electricity is dangerous. Credit is expensive.

I know a few people who've had debt problems, and the recurring theme is that they thought they'd muddle through some how. They didn't want to read the paperwork they were getting in the mail. They didn't want to read things before they signed them. They didn't want to watch the TV show about how to reduce your debts, or go to a free advice session at the library, and they most certainly didn't want to stop spending. If a credit card was rejected, they'd complain about the credit card company and use another one. No-one is asking the seething masses to become financial wizards, these misguided columnists are only asking them to think and that apparently is a cardinal sin (certainly politicians long ago learned not to even mention this particularly dirty word).

By the way I'd like to see evidence that US banks actually bury a charge you're about to be billed in a separate pamphlet. My guess is that the charge would be listed on your bill, and Fred's effectively adding "TLDNR. Free men don't read paperwork" to his long list of rights that he thinks Americans ought to march on Washington for.

[not_scottbot]

The NYT article is what the Calculated Risk link discusses, not the original article noted by Fred.

Sorry about any confusion. The $55 fee will be automatically deducted from your account, as per page 18, paragraph 14, section 3a, subsection 3a-12b, clause 3a-12b-iv-iii. (slacktivist could implement an unpublish button, solely for the benefits of the readers, of course - then it would be easy to erase mistakes or improve the past.)

-------------------------------------------

A note to our friendly Rich Sam, Poor Sam concerning a clever concept known as universal cross-default -
'Universal cross-default means that if you are declared in default (accurately or not and with notice or not) by any other creditor (another credit card, the cable company, the landlord, your uncle Jim), then that constitutes a default on your credit card and penalty interest rates can be applied, even if you have been making payments on time to the card issuer.'

http://www.creditslips.org/creditslips/2008/02/the-credit-card.html

That's right - they can jack your rates EVEN IF YOU HAVE HAVE ALWAYS PAID THEM ON TIME.

Read it again, Sam - 'that constitutes a default on your credit card and penalty interest rates can be applied, even if you have been making payments on time to the card issuer.'

They don't need no stinkin' pamphlet.

Though this is pretty good also-
'3) Retroactive application of interest rates is exactly what it sounds like. At the time you borrowed your cardholder agreement provided that your APR was 7.99% above Prime. Now the issuer has unilaterally changed the rate to 20.99% above Prime, and applied that to the balance you accrued when the rate was 7.99% above Prime. You thought you had made a deal? Guess again…'

People simply voting their interests would be more effective than marching on Washington, but I digress. Oh, and in modern American terms, I am advocating class warfare by even suggesting that having a friend of Mozillo lose his position in the Senate would be an appropriate response to massive fraud and predatory lending on an epic scale.

And yes, destroying a debt driven economy based on consumption sounds like a decent Christian goal, now that you mention it, Sam. Camels, needles, something along those lines if you need any scriptural support. Or if you prefer an intersection of old and new, think usury and money changers in the temple.

[Geds]

Repeat after me, not_scottbot:

I will not feed the troll.

I will not feed the troll.

C'mon, it gets easier after a while...

[Dash]

Since Rich Sam, Poor Sam reproduced some of the standard fare you'll find in the financial/business sector, including, as Fred points out, the very journalists who are supposed to be reporting on this sort of thing, I appreciate not_scottbot's responding. I'm not in favor of feeding trolls--and if the same tripe gets repeated over and over, I'll agree with ignoring it. But I also believe the best answer to bad speech is good speech, or, in this case, the best answer to slogans is facts. And not everyone knows what is wrong with what Rich Sam, Poor Sam said.

[Geds]

I appreciate not_scottbot's responding.

Actually, I do, too.

That was more preparation for future rantings from Rich Sam, Poor Sam.

Still, I love the whole "blame the victim" mentality. It's kind of like the story Reagan always told about the woman who got done begging at the end of the day and got in to a Cadillac to go home. Yeah, there are plenty of people out there who bought too much house and an Escalade they didn't need, but there are also a lot of people who racked up debt buying groceries and earache medicine.

For a lot of people who are in debt it's not because they haven't done their due diligence, it's because there's only so much due diligence you can do when you're working two jobs, raising a kid, and the way your creditors treat you is a trade secret.

Yes, Americans, heed what Fred is telling you. Can't get more credit? It's a conspiracy, turn on the banks and raze them to the ground. Can't afford to pay for all that cool stuff you keep buying? Well that's hardly your fault is it, march on Washington. If you work hard at it, you can help to wreck the economy, in a sort of childish fit.

This B.S., for the record, is why I'm calling him a troll.

Fred's not saying, "March on Washington to get another XBox, plasma TV, or a Cadillac." He's saying, "March on Washington so you can afford to put food on the table."

Something tells me that getting companies to stop equating my credit rating with my worthiness as a human being and getting credit card companies to stop charging a 21% APR won't wreck the economy. Saying it will is completely false and malicious.

[not_scottbot]

Well, the comment seemed just real enough (non-American, in this case), to be worth the effort - because really, most people outside the U.S. have absolutely no idea how bad things have become in America, and most Americans have no idea how unusual the U.S. has become compared to other industrial democracies.

Personally, I still can't imagine how universal cross default can even be legal. I don't mean how it became legal, but the simple fact that my actions with one party become the basis for another party to penalize me to that second party's benefit without the second party having anyone connection to those actions is simply something which continues to fill me with amazed disgust. Sort of like torture, a theme which seems to have gone quiet, even as the video comes out of U.S. and Canadian torture of a minor. And I don't want anyone to say it is a legal and binding contract - not all contracts are legal or enforceable, regardless of how important the sanctity of a contract has become to certain segments of the American population.

Honestly, I think that segment most interested in contractual sanctity tends to be mainly those worrying about their bonuses and golden parachutes, and oddly, the sanctity of laws is rarely mentioned while discussing the importance of contractual obligations.

[inge]

Yeah, there are plenty of people out there who bought too much house and an Escalade they didn't need,

And even with those people, there's a high likeliness that they've been misled and lied to, until they were so strung out that the cost for groceries and medication brought them tumbling down.

If I got an Euro for every time some moneylender or insurance salesman brazenly claimed something that didn't match what was written in the small print, I'd get that Escalade (well, no, I'd get a Porsche, but you get the idea).

[Brandi]

Sam sure does sound woeful, doesn't he?

[Jeff]

If you have a $2500 on a credit card and you're not paying it off

From the lack of reading comprehension and the "Libertarianism Rulez!" tone, could this be our old "friend" Scott, back with more head-pounding ass-holieness?

(Cross-oposted with Brandi)

[Geds]

most people outside the U.S. have absolutely no idea how bad things have become in America, and most Americans have no idea how unusual the U.S. has become compared to other industrial democracies.

That sounds about right...

If I got an Euro for every time some moneylender or insurance salesman brazenly claimed something that didn't match what was written in the small print

A few months ago I got repeatedly bugged by a company claiming that they'd get me, like, 2% off my student loan interest if I consolidated with them. I finally had them run the paperwork, just to see. When they sent out the documents the interest rate they quoted me was higher than the highest I was currently paying (it was something like 4.25% for about 2/3 of my loans and 6% for the rest, but the quote was like 6.75%). I'd be willing to bet that anyone who didn't know exactly what their interest percentages were and a bit of math would have been at least tempted and probably been talked in to signing with the really high pressure sales that particular company used. I wish I could remember who it was, but I don't.

Sam sure does sound woeful, doesn't he?

Just when I thought everyone had forgotten about that...

[indifferent children]

> you need to go back to high school maths and pay more attention in the class on compound interest

I don't think that my High School math classes taught about compound interest (which doesn't mean that *I* don't understand it, but many don't). I took "Home Economics", wherein I made some tasty English Muffin Pizzas and sewed a really cute doggy. Oddly enough, this Economics course didn't acutally include any economics.

A real "Home Ec" course is badly needed, and as badly as things are going, should probably be mandatory (if we can keep the credit card companies from supplying free textbooks that push "constructive debt".)

[Dorothy]

Sam sure does sound woeful, doesn't he?

See that man all dressed in green, iko iko unday....

[Comrade Rutherford]

"Americans need torches and pitchforks"

All I got is a flashlight and a lawn rake...

[Comrade Rutherford]

"And yeah, the credit industry is a giant scam."

It's called class warfare, the wealthy class is transferring the wealth of the middle classes to their own coffers, in order to destroy the middle class entirely.

As for 'proof' just look around at the state of the US economy today, after the last 28 years of this class warfare...

[Froborr]

I've never liked the term "class warfare." It implies a level of organization that I just don't see out there. The society we see is adequately explained by individual assholes acting to maximize their personal self-interest; I don't see any evidence of a sophisticated strategy or even desire to cause *harm* to the middle and lower class; rather, what I see is a desire and (to that very limited extent allowed by competitiveness and greed) strategy to improve the circumstances of the upper class coupled with a total disregard for the effect this will have on the lower and middle class. It is callousness rather than sadism, more like pollution than war.

Hmm... "class toxic dumping"?

[straight]

There's one sense in which Rich Sam, Poor Sam is on the right track, and it's that every American needs to learn that paying for anything with a credit card is a very bad deal in which you are definitely getting screwed unless you're sure you can pay the entire bill each month.

And even then, the companies will do their best to try to screw you with scams like the ones Fred outlines. But it's a lot harder for them if you're not carrying a balance. Credit cards need to be treated like poisonous snakes: dangerous, deadly, nasty things that you only use if you've got gloves on and a strong cage to keep them in.

For instance, Fred's example of paying a big medical bill with your credit card. That is just a dumb thing to do. You're usually much better off just not paying the bill and working something out directly with the health care provider.

Americans need to learn that, "I can't do that without putting it on my credit card," should simply mean, "I can't do that."

[Caravelle]

> you need to go back to high school maths and pay more attention in the class on compound interest

I don't think that my High School math classes taught about compound interest (which doesn't mean that *I* don't understand it, but many don't).

Mine did, but it was AP Calculus or something so maybe not everybody gets it. Also, it was just a coda to the whole chapter on series, showing "okay and here is how you calculate interest", which prompted me to go "what's that ugly practical, money-related... stuff doing in my Math ? Ewww.
And yet I remembered, how sad. But I'm not sure how it helps me understand the credit crisis better.

I took "Home Economics", wherein I made some tasty English Muffin Pizzas and sewed a really cute doggy. Oddly enough, this Economics course didn't acutally include any economics.

A real "Home Ec" course is badly needed, and as badly as things are going, should probably be mandatory (if we can keep the credit card companies from supplying free textbooks that push "constructive debt".)

We don't have Home Economics where I come from, but I always thought all subjects should be taught with a sharper focus on learning to be a discerning citizen. For one thing, "How to lie with Statistics" would be one of the math textbooks.

[thirstygirl]

Wow, every time I hear about this sort of thing it reminds what a weird place the United States is. That's some crazy financial hijinks. And a credit check for a job? Sure if you are looking at working in finances or things involving state secrets- your employer legitimately needs to know if you might be open to bribes or theft, but for anything else? And to then have it affect your credit rating? It's bonkers.

[Full Disclosure: I've been working for a bank since 2001. We don't pull this kind of thing here, not yet anyway.]

[thirstygirl]

Wow, every time I hear about this sort of thing it reminds what a weird place the United States is. That's some crazy financial hijinks. And a credit check for a job? Sure if you are looking at working in finances or things involving state secrets- your employer legitimately needs to know if you might be open to bribes or theft, but for anything else? And to then have it affect your credit rating? It's bonkers.

[Full Disclosure: I've been working for a bank since 2001. We don't pull this kind of thing here, not yet anyway.]

[thirstygirl]

Curse you, erratic wireless connection

*shakes fist at the ether*

[Wogglebug]

Here is a useful summary of the modern American credit industry and how it has modeled itself on loan sharking. Sample quotation:

"The second thing [the sub-prime and secured credit card industry, pawnshops, payday lenders, tax refund anticipation lenders, check-cashing stores, rent-to-own furniture stores, pre-paid cellphone companies, the sub-prime mortgage lenders, buy-here-pay-here used car lots, and "debt counseling" scams] all have in common is that, truth be told, they don't actually want you to pay them on time, let alone pay them back, and would go bankrupt if everybody did. Most of them make their money off of getting your initial deposit and application fee and transaction fee, then repossessing the car or furniture or house or whatever they sold you or you used for collateral for free and selling it. The rest are counting on the the threat of their ability to do so to make sure that you don't complain, to them or to any attorney general, about any legal or illegal fees they choose to charge you for the privilege of staving off the destruction of your life. The actual interest payments, let alone the principal, aren't designed to be paid off. On the contrary, they're designed to be impossible to pay off; the threat to actually try to collect those loans is used for leverage to steal everything you have."

[Jeff]

Curse you, erratic wireless connection
*shakes fist at the ether*

It's more likely TypePad (worthless piece of lexcrement that it is).

==========================

pre-paid cellphone companies

I don't quite see how these fit in. I thought with these plans, youi paid up front, used the phone intil your pre-pay ran out, then pre-paid sopme more. How do you "fall behind" with a pre-paid plan?

All the rest are scams, though.

[hapax]

Jeff, the pre-paid cellphones I am aware of require you to keep renewing your "pre-payment" every month (even if you haven't used up the earlier money, and no one ever does), or risk paying a hefty "re-activation" fee.

[thirstygirl]

That's a very odd definition of 'pre-pay', again something we don't have.

Oh yes and some contrasting news, banks here are currently in a smidge of trouble with the Commerce Commission* for charging un-secured interest rates on cards** when a large number are secured against a mortgage. Any ruling is almost certainly not going to be in favour of the banks or card providers. Apparently we don't think it's "fair" to do this. Crazy, I know.

*[I think, trying frantically to remember name of the governmental agency]
**There is basically two possible interest rates for cards*** that everyone knows upfront so there is no 'surprise!we've just jacked your rates!' as per this post.
***neither of them is particularly nice

[Jeff]

"lexcrement" was a typo, but I like it!

==========================

Jeff, the pre-paid cellphones I am aware of require you to keep renewing your "pre-payment" every month (even if you haven't used up the earlier money, and no one ever does), or risk paying a hefty "re-activation" fee.

Ewwww! That truly does suck (and not in the good way)!

===========================

Thanks to those who recommended "The Great Match" aka "The Grand Final". Wonderful, witty and beautiful film -- all three locales (Mongolia, the Nigerian desert [which looked Saharan], and the rain forsets of Brazil) are lovingly photographed. Even my sweetie, who dislikes closed-captioning and subtitles loved the non-verbal portions.

(I did the time conversions from 1:00 PM Yokahama to Lagos (5:00 AM), Ulan Bator (Noon) and Brazil (1:00 AM) and they don't match up, but creative licence was needed, I think.)

The important message from this movie: Never muff a penalty kick when your CO is counting on you.

[Vermic]

A real "Home Ec" course is badly needed, and as badly as things are going, should probably be mandatory (if we can keep the credit card companies from supplying free textbooks that push "constructive debt".)

I took a Consumer Ed class (which IIRC was mandatory) in high school, around '88, which covered personal budgeting and things of that nature. Did US schools stop teaching that? If so, it's a shame; this is basic stuff that everyone ought to be versed in. And while they're at it, they could add "Critical Thinking/How Not to Get Scammed 101" to the curriculum. Really, you can't have too much of that sort of education.

In The Dilbert Future, Scott Adams writes about a form of monopoly called the "confusopoly". It's where an industry contains a group of businesses who are theoretically in competition, but collude to keep their customers so confused about pricing, services, etc., that it becomes impossible to determine which product is best. For many businesses (some might say all), a well-informed customer base is not in the company's best interest.

[Rich Sam, Poor Sam]

So, I'm blaming the victim apparently. Well, I guess it's true. I just don't have the imagination to blame other people for something you did to yourself. But I'm not really angry with the victim, I'm angry with the person who got them (and with them, us, by spending beyond our collective means*) into this mess, it just happens that they're one and the same.

FICO is a red herring. That it's caught Fred's eye shouldn't surprise me, but that he's able to balance a whole argument (including clauses that are independently quite reasonable) on this non-existent pin point, ought to shock anyone paying attention. If you are, as Slacktivist posters always like to envision, living on the breadline, then you don't care about your FICO score. If you're shopping for a new car, and wondering why other people seem to get a better deal on car loans, then sure it's time to start paying attention to credit scoring. But that's not what we're talking about here, so far as I can tell.

Credit cards are short term convenience credit. If you use them as a long term loan it will cost you vastly more than if you just got yourself an actual long term loan. But once again in a triumph of American blame culture, the people who get blamed for this are the credit card companies. I wonder (and so do they, most days) what we should do about this. They tried...

• Leaving things alone - and we told them that we weren't even trying to do something about the problem
• Giving people whatever credit they asked for - and we told them that this made it too easy for people to get themselves into unmaintainable debt and they should be more strict.
• Refusing to give credit to people who are poor risks - and we told them that this made it too hard for the desperate to get things they must have, and they should be less strict.
• Providing high risk credit, but at worse rates as a disincentive - and we told them that they were acting like loan sharks.

But it's OK, because torches and pitchforks will fix it all. Some good old God-approved righteous anger, right? I mean, it worked for God, at least, well, it didn't actually work for God either I suppose. Wash everybody away, start over, and get the exact same thing as before. Not a success. Hey God, did you try adding mandatory warnings? What's that? You issued a whole book, but nobody reads it? I feel you there. How about a summary version. People would read something that fits on a bookmark, right? No? Most of 'em can't even remember the top 10 tips? Well, you're just blaming the victim, God. You won't be popular around here on Slacktivist.

* Here's where the disconnect happens. It doesn't hurt me as an individual. For me what happened is that my rates went up, things are more affordable, the government needs to borrow money to pay for all this mess, and I happen to have money which I can lend to them, so I do fine. But this is not what I wanted to happen. It's like winning a race because the guy in front of me hit a wall and his car exploded, killing him. A very hollow victory.

[inge]

indifferent children: I don't think that my High School math classes taught about compound interest

We did that, probably some time around 10th grade, and then again in the advanced math course in 13th grade, where we went up to higher wizardry and calculated the fair price of bonds depending on the fluctation of interest rates over the years and such things. I still have the book with tables. (The way to do this without pocket calculators, let alone computers.)

But it was a math game, not something you felt you could actually use. Calculus and vector analysis were useful for physics class, statistics were useful for geography and playing cards during recess, but financial math was just a curiosity, and sure had nothing to do with how you spent your money.

Useful home economics would have to teach one to actually think about money, resource allocation, developing scenarios of the future and planning accordingly, and even in history and geography we mostly learned the many ways such plans went wrong.

[Alexis]

Morgenson's article described the odd combination of misfortune and poor decisionmaking that I suspect is more common than pure misfortune or pure poor decision-making in creating the current crises for a lot of people. The woman in the article had clearly made some poor decisions (buying things she couldn't afford, behaving against her work polity resulting in termination), but she just as clearly had had some personal misfortune (medical crises) and been horribly sharked by the companies involved (fees, ridiculous rates, etc).

This mixup of the two influences makes it tough to address the problem because each side blames the other wholly. It's not just sharking, and it's not just poor decision-making, but as long as each side can point to horrid examples of the other contributor, it's hard to get anywhere.

I've noticed this same strange mixture in the newsletters I get from my credit union. On the one hand, they contain a lot of pretty reasonable advice about managing finances and debt, and on the other, they implore you to take out their home and car loans, tell you that skipping a $79 monthly "indulgence" and investing at 8% rate of return (...in what?!) will give you so much money, and you should skip lunch and scrimp on groceries to save money, or just don't buy that $40 shirt...as if it was just as good to skip lunch as to not buy a $40 shirt.

[inge]

straight: paying for anything with a credit card is a very bad deal in which you are definitely getting screwed unless you're sure you can pay the entire bill each month.

From the way I read some of the stories here, always paying your bills completely and on time is the way to never get approved for a mortgage because you have no credit rating, i.e. shown no inclination to mortgage your soul to the company store.

Re: Caravelle on Home Economics: When and where I went to school, only the lowest rangs of schools (the 9 years ones) even had "basics of running a household" on the curriculum, and it was mostly cooking and some sewing for the girls and how to fix simple plumbing or electric installations for the boys. 13-year school didn't lower itself to that kind of teaching.

[Consumer Unit 5012]

A random question for the Bible/history scholars here: I seem to recall that for quite a long time, Christianity forbade "usury", which was part of the reason for the stereotype of the Evil Jewish Moneylender.

What chapter and verse condemned this, and when did it become "OK" to lend money at interest?

(I also seem to recall hearing that Islam still mostly dislikes interest. How do Muslim cultures do big business without credit?)

[John Mark Ockerbloom]

Has the prepaid cell phone business changed significantly since early 2006 (when the linked article came out)? Or are there different prepaid markets out there?

Right now, if you're only an occasional cell-phone user (like I am), prepaid looks pretty good. I bought a $20 Virgin Mobile phone about a year ago, buy a $20 prepaid card every 3 months, and get all the minutes I need for my cell-phone use (about 30 minutes a month on average; we just use it for travel, emergencies, and the like.) If I don't buy a card within 90 days, my phone stops working, and I eventually lose unused minutes, but there's no fee to restart service. T-Mobile has a similar deal with their prepaid phones.

Yes, the per-minute cost is a good deal higher than the subscription plans, but if you don't need all the minutes the subscription plans offer, the total cost is way less than the cheapest subscription plans I've seen from the major carriers.

The other items mentioned (refund loans, rent-to-own furniture, etc.) do have nasty hooks or extortionate prices, but prepaid cell phones, at least for low-use callers, seem pretty reasonable to me these days.

[Jenny Islander]

I didn't learn how to balance a checkbook until well after high school. Reason no. 346 that I am homeschooling my kids. I want them to know about inflation, interest, credit card shenanigans, balancing a checkbook, income tax, setting a budget, etc., _before_ they are living on their own. It would save them some rude shocks and sleepless nights.

[John Mark Ockerbloom]

On the credit history thing: Based on a look at my credit report (annualcreditreport.com-- free reports once a year!) it looks like some creditors only report to one of the 3 major credit agencies. (I see this mostly with utilities, and store credit, but it might happen with student loans as well as far as I know-- I've never had one.) If your potential lender just looks at another of the 3, they may see no credit history at all.

The major credit cards I've had report to all 3 agencies, so if you want to build up a credit history, you may want to get one. Just use it with care, and pay the bill off in full every month so as to avoid paying interest or getting socked with other charges. Online bill-pay, now offered free by many banks and credit unions, can help minimize the risk of getting dinged by a payment or bill lost or delayed in the mail.

The credit reports sometimes give balance information, but they don't seem to indicate whether you roll balances over month to month. So there seems to be no point in doing that, and getting soaked with interest charges, if you don't have to.

(For what it's worth, when we got our first house, the only credit history I had was several years worth of credit cards I'd paid completely and on time. We had no problems getting a mortgage-- in fact, our realtor said we had one of the highest scores she'd seen for first-time buyers.)

[Amaryllis]

Alexis: Morgenson's article described the odd combination of misfortune and poor decisionmaking that I suspect is more common than pure misfortune or pure poor decision-making in creating the current crises for a lot of people.
True. And the current economic climate makes it very difficult to correct course after a financial mistake. There's no mercy for error.

[old-lady mode] In the old days (not actually all that long ago either), if you noticed the credit card bills getting high or the savings getting low, you could cut back on consumption - not buy the $40 shirt and so on - and at the end of the month be a little bit better off. Now, what with the higher cost of credit, with the soaring cost of energy (our gas&electricity bill went up 72% this year, with another 8% increase due in the near future), with the health-care mess, we're spending more but getting less for the money. And it rankles. [/old-lady mode]

And if I, with my decent job and middle-class life, am feeling the pinch, I can understand that life must be getting difficult for a lot of people without those blessings.

And because I can understand it, it's time for this thread's Nash moment:
People who have what they want are very fond of telling people who haven't what they want that they really don't want it,
And I wish I could afford to gather all such people into a gloomy castle on the Danube and hire half a dozen capable Draculas to haunt it.
- Ogden Nash, The Terrible People
---
Jeff: "lexcrement" was a typo, but I like it! It's not a typo, it's a portmanteau!

[Rich Sam, Poor Sam]

“From the way I read some of the stories here, always paying your bills completely and on time is the way to never get approved for a mortgage because you have no credit rating, i.e. shown no inclination to mortgage your soul to the company store.”

Given the nature of this thread I'm not surprised you have this impression, but you'd be wrong. If you have a regular income (e.g. salary from a job) that leaves you with enough spare every month to comfortably pay the mortgage, then the bank will lend to you on that basis. If you like they'll probably be happy to have someone sit down with your checking account paperwork and figure out how much you actually do have spare, and thus what you could afford in terms of what you'd be able to buy.

[Jeff]

It's not a typo, it's a portmanteau!

That's glory for you!

[Jeff]

BTW, The Slactivist Party Wiki has been updated. Anyone can edit: Add a city to the home page and/or add your name to a city.

I table-ized the cities; someone else split them by location (thanks, "someone"!). If you have a new ciy, add it to the appropriate location. (The Text Editor might be easier to use than the visual editor.)

What we might want to do is have a combo live/on-line meet-up: Those of us who live close to each other ("close" being a relative term) can meet up, then the groups all meet on-line. This might give the best (or the worst) of both worlds. Yes, No, Maybe?

[mike.timonin]

J.M. Ockerboom:

Yeah, we're using exactly that system for cell phones. I'm thinking that the "scam" in question is something else. Mind you, with a non-prepaid phone - ie, a phone with a contract attached - we got screwed. These phones, if I stop liking the service, or I break the phone, or whatever, I can go and get a new one as easy as walking into a Target.