Why I Say Credit Scores Are Worthless
I’ve been on this minor rant for a few months against credit scores and some of the things financial advisors have been telling people in regards to making sure their credit scores don’t fall by cutting up credit cards. They’re telling people not to do this, even as banks have been jacking up interest rates on everyone, including people who had these great credit scores.
On Monday, the Federal Reserve proved it, presenting statistics that showed around 50% of all banks had jacked up interest rates on people whose credit scores were good. Around 40% of banks said they were imposing higher fees, and many others mentioned they were raising the credit score limit in deciding who was going to get new credit cards.
Now, that 50% doesn’t necessarily sound bad until you realize that the 12 largest banks in this country are responsible for issuing 80% of the credit cards. That means that the majority of people in the country have been hit with these things, and that’s a phenomenal number.
Another study, done by the Pew Charitable Trusts, also showed that some of the laws that have already been approved and implemented have been ignored by many of these banks. They didn’t highlight what these laws were, however.
Of course, the banks say they need the money, and that all this legislation is bad for consumers because it will restrict how much credit they’ll eventually give out. Please; these are the same people who have been preying on college kids, and have actually given credit cards to children and animals without realizing it. Their practices have been questionable for decades, and in reality, they were probably giving credit to people who shouldn’t have had it, or at least giving lots of credit to people who shouldn’t have had it.
I’ll even own up to that one. I had a $10,000 credit card when I was 28 years old and not making more than $20,000 at the time. And I didn’t ask for it; not really, anyway. I put in for a card that said it would give me $2,000, and this card shows up with this high amount. Lucky for me, I didn’t ever get close to that, but I could have.
So, fewer people will qualify for credit they shouldn’t have had; trust me, I understand how that works, and we all should be ready to accept it. It’s not going to hurt everyone in the way they think it might. Stores will still issue their credit cards with small balances, and banks will probably issue cards with smaller balances also. Cards might start having fees, and might require larger payments up front. It works out better that way, because people will be able to pay off their balances quicker, and that means less in interest being built up on their accounts. Banks have counted on this one for so long that they also forgot that none of that money was real.
At the same time, credit card debt is down almost, so banks don’t even have any of that money to hope to collect on. People are learning their lessons, and spending less. That’s dropped the number of credit cards in the last 12 months 75 million, but still leaves more than 550 million credit cards out there; at least Visa, Mastercard and Discover anyway.
I have no sympathy for the banking system. They’ve been taking advantage of us for years at this juncture. I remember when I was a kid being able to get a savings account that paid a lousy 2% a year. Now try getting one that pays more than .5% a year, without hitting you up with a $4 monthly fee.
That’s progress for you. But at least now you understand why I’ve said that credit scores are worthless. Some are going to debate me on this one, but it’s what I believe, and I’m not changing my mind one bit.
And don’t even get me started on the real estate market and credit scores!