If I were a credit card company

[Phoebe Loosinhouse]

I would create a credit line called Just in Case with a 1K, 2K or 3K limit. The holder would be limited to 3 usages of the card a month and part of the deal would be that an automatic payment from a bank account would be set up for 1/12 of the outstanding balance monthly. The percentage rate would be fixed at 10%. One missed payment and the card is closed out permanently.

The bank would have fairly small risk and many people would have access to an emergency lifeline. Something like this might teach people to have credit but use it sparingly, only when necessary and pay it off quickly.

[SoCalDem]

1. That's how credit cards STARTED.. with small credit limits,

low interest, and with a real application process, adn not everyone was approved..

When we got our BankAmericard in 1970, it had a $500 limit, and it only was raised after our "probationary period of SIX MONTHS..
BUT

banks cannot gouge customers and get rich with small potatoes like that..They NEED for people to overspend, so they will pay late or just the minimum (interest, usually), and never actually pay off the principal.

[Warpy]

6. The interest wasn't low

It was 18 3/4%, about right for unsecured small loans. The credit limit was low. My card in 1987 had a limit of $1000.

In 1991, I noticed some fine print had been added to the statement: the limit had been raised to $5000 (even though I never had an outstanding balance over $200 and that was after a trip), there was a demand for a minimum monthly payment, and there was a collection of junk fees.

At that point, I saw the scam coming, cut the bastard up, and sent it back.

I use an ATM card on a junk account for online purchases and car rentals and it works just fine. I keep the balance in that account low enough that I won't get nailed if I get hacked.

You can live without a credit card. In fact, it now makes a great deal of sense to do so.

[brendan120678]

2. What most people need to understand with credit cards is...

that even though you may have a high limit, it is still extremely stupid to charge more than you can pay off at the end of the billing cycle. For the most part, I only use my credit cards as a "replacement" for cash, because I don't like carrying stacks of bills around with me.

[Kali]

5. actually you will get the best scores by maintaining a partial balance

and making largish payments. But yes financially for you it is better to pay it off with no interest.

[brendan120678]

10. I (respectfully) have to disagree...

I think it's a myth that keeping a balance on your credit cards will have a positive impact on your credit score. I already have a mortgage and two car payments - those will do in lieu of credit card balances.

I've been told that the best idea is to keep your balance at $0 at the end of the payment cycle, especially if you do not have an interest-free credit card. Obviously there will be no need to pay interest if you have the money to zero the balance. But, you should definitely keep using the card monthly. If you were to stop using the card, the credit card company may lower your credit limit, or even eliminate the account. If your credit limit is lowered, your debt-to-credit ratio is increased, hence lowering your credit score. You want to protect your lines of credit, but keep your balances low in order to raise your score. Keeping an unnecessary balance is just costing you money.

So to summarize - use your credit card each month, but pay it off each month.

[Kali]

13. I stand corrected.

I had read that somewhere and your reply led me to google a few sources - a couple said keep a 10 to 30% balance but most said it was NOT necessary - as long as you actually used the card regularly. Never using it or worse, closing cards, is NOT good for your scores.

Thanks for "making" me look that up!

[deaniac21]

3. I don't think you find any interested parties.

[customerserviceguy]

9. Exactly

the people who need "an emergency lifeline" are probably seen by banks as the riskiest people to lend to. They're the ones who have no savings for emergencies, and they are the ones who probably define "emergencies" differently from the people who are the banks' favorite borrowers.

However, maybe some credit unions might be persuaded to try the idea.

[Kali]

4. how in the hell is that going to help the economy?

if people can't spend gobs of money they don't have on plastic imported crap they don't need, how will the "financial" sector be able to manipulate all of its paper to show profits it doesn't actually make and pay CEOs the millions they so RICHLY deserve?

[KharmaTrain]

7. Their Hooked On Interest Like Heroin

Initially the card holders made their profits from the getting a percentage of the sale along with an annual fee. It was "credit" in the sense that you had the resources to pay off whatever you borrow. The problems began when the credit card companies introduced revolving charges that let you borrow more and pay less and the company made a couple bucks as your interest on the balance would grow. Soon the large number of revolvers were the prime source of revenues...those who paid on time were "dead beats" and the profits of the card companies soared as they offered more and more credit to snare more and more people into revolving.

The idea of a small term card is a great idea...in the form of a debit or "cash" card, but for the credit card companies, there's not enough juice. It's too short term. They want people who dig in deep and long.

[dkf]

8. I don't understand why people don't have an auto-pay of the minimum.

Isn't that a no-brainer?

However, what you are describing seems to be an Emergency Fund which all people should have anyway. It is a screwed up world where people have no savings and go to credit cards when they get into bad situations. How in the world is someone supposed to pay this back if things are such a mess?

Credit Cards are supposed to be for people with income who have the ability to pay it back. Its usage as a down and out means of survival is warped.

[Jennicut]

11. My husband and I payed off my cards and I totally got rid of them. One less headache.

Never again will I use a credit card. Some can do it..for me I always put off paying it off and it just builds and builds. I am bad with them so I cut myself off.

[Hugin]

12. But... But... How could this be securitized into those sweet tranches and lovely CDSs designed for..

HUGH returns when the rube cardholder fails? :shrug: