The availability of credit for anyone no matter their credit history has caused many financial problems for consumers. When credit is available to those with a poor credit history, interest rates are jacked up, loan terms are hard to meet and the consumer finds that they are in a worse situation.
The average consumer has about $12,000 in credit available through their credit cards. Over 50% of those consumers only use about 30% of the credit available to them. The other statistics show that 1 in every 8 are using at least 80% of the credit available and 1 in every 10 are in debt at least $10,000. Some credit card companies report that at least 20% of consumers have maxed out credit cards.
There are more Americans in debt now than in the nation’s history. Not everyone keeps a budget. Not everyone knows where their hard earned dollars go. Not everyone is cost-conscious. According to Businessweek, families owe more on their cars, their homes, and their credit cards, than they they have as a net on their yearly income.
Even with this alarming information, money lenders, credit card companies, and financial institutions are not deterred.
The credit card companies have done a thorough market research and then with the demographics in hand they construct their targeted audience with a demographic specific sales pitch or ad.
If you have a good credit score, (630 or above), you can usually get a line of credit or credit card with an interest rate of 12% to 18% depending on the company. To get a Platinum status card you will most likely need an income of at least $25,000 per year with a low debt to income ratio. For a Gold card status, your income only need be in the $10,000 per year range.
In or around 1990, the credit industry introduced the subprime market. This particular market targeted those with credit scores of less than 500. The other issues that qualified you as a subprime target were little or no credit history, those who were finishing up a bankruptcy, and those who showed a history of not managing credit to the best of their ability. The credit card companies found a way to profit off the consumer who was usually in a desperate situation and was looking for credit help in the form of a loan or credit card.
Some of the interest rates on these cards were close to, or over, a whopping 30%, while the credit limit remained very low anywhere from $250 to $500. If you were late on a payment that could also cost you a hefty fee and the credit card companies were making thousands of dollars on these borrowers.
While this looked appealing to the lenders, they soon found out that a large percentage of their customers held true to not paying their bills and they were astonished to find out that more than 10% of their customers were delinquent. With the industry average only being 5% delinquent, this was a big cut in their profits. Even though some card issuers went out of business, others pushed the envelope even further.
In 2004 over 1 million credit card holders filed for bankruptcy. This sent a shockwave through the credit industry as a whole and so they lobbied for stricter laws related to bankruptcy. What’s really strange, though, is that while they screamed for bigger punishments, garnishments, and payback terms, they continued and some even increased, their ad campaigns to target this same subprime market.
You, as a consumer, should investigate all options before signing that dotted line. Have you really read the terms associated with your credit card? Do you have a fixed rate that is within your budget? What are the default fees, the over limit fees, the yearly fees?
Some Solutions:
1. Find a way to put at least $500 into a CD or Savings Account at your local bank.
2. In a financial emergency, you can borrow against your own CD or savings account with an interest rate of only about 2% to 3%. That’s a far cry from a credit card with a $500 limit charging you 28.9%
3. If you don’t have the cash, then don’t buy it yet!
4. Repair your credit score by paying off all loans, credit cards, installments, on time or before.
5. Set a goal to have your credit score reach at least 630 within one year. Then focus on improving it more through the next couple of years.
6. Have a way to make extra income devoted solely to paying off your debt. (Babysitting, garage sales, etc)
Rebecca Game is the founder of Digital Women ®, Digital-Women.com, an online community for women in business. She is a 30 year entrepreneur and dedicated to helping other women find business loans and business grants. Visit her site: Business Grants and Loans for Women
Rebecca Game