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Credit where credit is due

James Suroweicki explains the logic that drives credit card companies to strangle consumers.

…credit-card companies have created a strange business, in which there’s a fine line between good and bad customers. Their best customers aren’t those who dutifully pay off their balance every month; instead, they’re the ones who charge a lot and pay only a little every month, carrying a sizable balance and racking up interest charges and late fees. These are the “revolvers,” and the credit-card business feeds on them. Credit-card companies don’t necessarily want revolvers to pay off their debts; if they did, there’d be no interest or fees to collect. They want their loans to be, in the words of a banking regulator, “a perpetual earning asset.” And they’ve thought a lot about how to keep those interest payments coming. For instance, they used to keep minimum payments relatively high. But, over time, companies started lowering minimum payments, sometimes to just two per cent of the balance. The lower the minimum payment the less people pay off each month and the longer they stay on the hook.

Comments

  1. Fred Mcdaniel says:

    The current economy is a mess everybody knows it. What is amazing is how some people continue their daily life as if nothing changed and one such behavior is their attitude to their credit score. Foreclosures and just not paying laons is not a solution. Until Americans become more responsible for their debts we can not get out of the current mess. It is about time Americans educate themselves about finances and debt. Just taking debts on credit cards and home loans is not the way to go unless you understand what you are doing and face it most of us just do not. Here is a good resource to read about credit http://www.badcreditloansgenie.com Education is key after all you would not try to fix your television set without studying how to do it first but you take a mortgage without understanding the basics behind debt.

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