Credit -- A Good Idea Gone Bad
Fri., November 23, 11:28 AM
I have been expecting a crisis in the credit world for some time, but I didn't have it quite right. I did not expect it to happen to mortgages first.
I'm sure that you, like me, know many people who routinely overspend on their credit cards, paying just the minimum in order to keep them “current.” You probably know some who use one card to pay off another and even open new accounts in so that they can increase their credit.
Logically, that is the road to destruction — or at least to bankruptcy. You may say, as I did, “I pay my entire balance every month, so I am safe.” That does seem to be true, but what do you suppose will happen if all the credit companies are holding too many unpaid bills to continue to operate? How safe are we if the banks go under?
No, I don't think we are in imminent danger of multiple bank collapse. It's just that it got me thinking about how much the credit world has changed since I was a kid. I find it hard to believe: universal personal credit is a comparatively new phenomenon.
I suppose there were plenty of people who didn't live as we did; I just didn't know them. Whenever you bought something, you paid cash. If it was a big something, like a house, you got a loan from a bank; then you had a mortgage, and (gasp!) you sent a payment every month until it was paid off. If you didn't have the money to buy it, you did without until you had saved up enough.
Some people bought things “on time,” and then they owed the money to the store. My father explained that the store would charge interest, and it was wiser to save your money in a bank account so that you could earn interest instead. Some stores also had “convenient lay-away plans.” I saw the signs advertising them, but we never did that, and I never knew what it meant till I grew up.
The only kind of charge account I remember seeing as a child was for people who opened an account with a store they in which they shopped frequently. Maybe my mother had such an account with the local department store, as I remember being at the office where customers came in to pay. However, it seems to me that the local utilities had convenient payment centers in the store too; we could have been there to pay the light bill!
Some private charge cards did exist, even if I did't know about them. (They were for rich people, who traveled and ate in restaurants; we never did that.) The Diners Club card was invented in 1950. In the 1960's my boss had American Express — we had heard of traveler's checks — but his boss couldn't understand why he didn't need a cash advance when he traveled. So I guess I wasn't the only uninformed person in the world.
As a young adult, I often paid with a check, but that was occasionally difficult if I wasn't known at the store. I did not drive, so I did not have a license for identification. Some stores issued ID cards for check-cashing purposes, but it became simpler just to have an account at the store. I paid once a month, which was a prudent way to do it, inasmuch as it meant just one check, at a time when we paid for each check we wrote. My personal rule of charge cards, even then: never charge more than you have in your checking account. There were also stores that would accept a check from me when they saw that I had accounts in other stores. Certainly it was wise to build a financial reputation — we didn't call it having good credit.
When I got married, naturally I asked the stores to issue me new cards with my new name. Imagine my surprise when they requested my husband's credit history. I refused, just on general principles, and closed the accounts — all of them. What I didn't know was that, at that time, a married woman simply did not have credit of her own! Think of it: a mere forty years ago, women finances were part of their husbands' — even if they held jobs and earned money.
I didn't worry about it too much. We had one of those new cards, issued by a local bank; it was called the “Charge-Account-Plan,” or CAP. We could use that for the larger purchases we had, like furniture or a new crib. It was still not that easy to get a card.
CAP evolved into the Bank-Americard, which I believe evolved into the original Master Charge card. I needed to carry something like that, as I still did not have a driver's license. A store that didn't accept the card for payment might still recognize it as ID.
Sometime in the seventies, I believe — I think it was before I went back to work — a law was passed stating that a woman had personal credit if her husband had it. The law protected women who were divorced, because without it they had to establish credit all over again. I was not about to get divorced, as you know, but I saw this as a reminder that I needed to look to my own personal credit.
Once I had a regular job, I applied for — and received — personal credit cards. And in 1987, having become a licensed driver by that time (!), I bought a car of my own. We could have paid cash for that car, but I wanted and needed to establish my own credit. I have maintained it ever since, usually paying the full balance on accounts every month. (There have been some exceptions, of course, but I have never been in default, despite overzealous children and some actual identity thefts.)
Meanwhile, I have watched the world of credit cards change. Suddenly, everyone is trying to sell you a card, with misleading ads. A week doesn't go by without more offers, even for Husband, who hasn't used a credit card for at least five years. But we still have the descendant of that old CAP card, which does indeed have his name on it, so he is in the system, even though I rarely use it. I have two others in my name only.
There is more economic opinion in the pipe — because I really do not have confidence in the economy.
