My Visa Card's Secret Identity is A Victoria's Secret Gift Card
December 20, 2004 1:32 PM   Subscribe

Frontline's: Secret History of the Credit Card
Includes alot of useful and less than well known information like "universal default" clauses that allow your credit card company to raise your interest rate when you're late on a payment to another creditor and there's no limit to the late charges a credit company can lay on you as well as no limit on the interest rate they hit you with. And that's just the tip of the iceberg.

Of particular interest: credit scores explained and an examination of credit responsibility. There are also interviews with lawmakers (including the infamous Bill Janklow). Not sure how well versed you are on credit card info? Take the quiz and find out. (I did badly).
posted by fenriq (21 comments total)
On the quiz, 7 out of 11.

It's hard to talk about the negatives of credit cards without accentuating the positives: If you pay off your balance each month, you essentially have a perpetually running (potentially multi-thousand) interest-free loan. And if you have a card that has some reward attached to it and no annual fee, you actually come out ahead at the end of each year.

Interest-free loan plus money back. I'm hard-pressed to think of another consumer interaction that has the very real possibility of being so in favor of the consumer.
posted by pardonyou? at 1:45 PM on December 20, 2004

This "universal default" crap is a symptom of the US's weak personal privacy laws and something that cannot happen in the EU. The European Union takes personal data privacy very seriously; your banking and credit data cannot be shared with third-parties or redistributed without your express consent. The 1998 Data Privacy Directive not only prohibits the transfer of every individuals private data between third-parties within the EU, but prohibits the transfer of personal data overseas between corporations if the data is to be transferred to a country with below-adequate protections. The US is listed as one of those "below-adequate" countries. As a result, legally only aggregated, non-individually identifiable data can be transferred to the US.

And in the EU, if you think any organisation has records on you, you can gain complete access to those records without a subpoena. It's a simple bureacratic enquiry, akin to the US's FOIA, but applicable to all organisations. If you find the data is in error, then the organisation has to correct it as specified, or justify their version to a local data commissioner.
posted by meehawl at 1:49 PM on December 20, 2004

Incredible. According to the quiz, the industry jargon for someone who pays off their bill in full every month (and if you do anything else you're a lunatic) is "a deadbeat". What a perverse industry, that's diametrically the opposite of the definition of "deadbeat" everyone else uses.
posted by George_Spiggott at 1:51 PM on December 20, 2004

I would suggest everyone shop around for the best MCard or VISA that has the APR rate and also has a no annual fee. Then open an acct with this company.

Cut up all the rest of your cards, especially the Private Label (single store) variety and pay them off asap with the money your rich uncle gives you for Christmas or that upcoming tax return.

Use that new MCard or Visa whenever you want to put something on credit. Then pay it off each month. If you cant pay it off, pay 50+ percent of the balance.

(FYI - I got 9 out of 11 correct on the quiz, but the two I missed were company specific.)

Also heres a tip - if you cant afford it, dont buy it !

Collection Dept Manager
A Major Credit Card Issuer
posted by mikeinclifton at 2:00 PM on December 20, 2004

What I find strange and disturbing, is that someone with no credit history is actually a worse credit risk according to these people, then someone who has a history of being a bad credit risk. To explain, I just recently went to go purchase a car, for the first time without being able to afford the entire payment up front, so I had to take out a loan. I could not get a loan even with a co-signer because I don't have a credit history. So despite the fact that I have a steady job I've had for a while, an apartment that doesn't take up too much of my income, and money in the bank in case of an emergency, according to them I was a bigger credit risk then someone who was 1 step away from filing for bankruptcy!!
posted by KirTakat at 2:14 PM on December 20, 2004

KirTakat - Maybe they just didn't like the cut of your jib.

posted by fet at 2:16 PM on December 20, 2004

I just wanted to second the recommendation for the Frontline special, it's available online in 15 minute chunks. Well worth the watching.
posted by ao4047 at 2:35 PM on December 20, 2004

Huh... so I guess the car dealer wasn't bullshittin' me when he said our 690 was "just short" of getting an optimum loan rate. As it was, we did okay.
posted by Doohickie at 2:36 PM on December 20, 2004

Doohickie, my motorcycle dealer gave me a bad rate in the shop, I got home and refinanced my loan online in about an hour (used what was PeopleFirst and is now CapitalOneAutoFinance) and saved something like $2800 on the loan.

KirTakat, yeah, its strange that no history is worse than a bad history. Best advice is to get a card, run up a little credit, pay it off and then sit on the card.

And pardonyou?, thanks for pointing out the good aspects of credit cards, they aren't evil, just dangerous when used without enough information.

George, I missed the deadbeat question too. I wonder if the refer to college students as cash cows?
posted by fenriq at 3:00 PM on December 20, 2004

pay it off and then sit on the card

Doing this will worsen your credit score, I've read.

The reasoning is this: Let's say you have several credit cards, with credit limits x, y, and z. If you just sit on the card with no balance on it for months and months, you could theoretically rack up (x+y+z) in an instant and run off into the sunset. That's a risk they don't want to takeā€”that you'll suddenly call upon all your lines of credit at once.
posted by oaf at 3:25 PM on December 20, 2004

pay it off and then sit on the card

Doing this will worsen your credit score, I've read.

Yes and no.

If you have one or two cards, you're okay. But your credit score is affected by the number of open accounts that you have, whether or not they have balances. Thus, you will score higher if you only have a few open accounts that you've used responsibly.
posted by Juicylicious at 3:38 PM on December 20, 2004

oaf and Juicylicious, good points, I suppose it would take more than just a couple of purchases. You need to demonstrate the ability to get into some debt and then back out of it.

All I know is that my score went through the roof when we paid off all my cards. Funny that.
posted by fenriq at 3:55 PM on December 20, 2004

so they can do, almost, whatever they want to you...the bastards.
posted by bakiwop at 4:27 PM on December 20, 2004

i would suggest everyone put a seven year fraud alert on their credit accounts. It can take time to do but it protects you from someone doing a walk in "give me credit" with your personal info
posted by halekon at 4:50 PM on December 20, 2004

Credit Scores, what influences them, according to Fair Isaac

Department Store/Major Credit Cards
None: 0
Dept St: +11
Maj CC: +16
Both: +27
No answer: +10
No Info: +12

Number of Revolving Trades
0: +5
1-2: +12
3-5: +8
6+: -4

% Balances Available
0-15%: +15
16-30%: +5
31-40%: -3
41-50%: -10
>50%: -18

Bank reference
Checking: +5
Savings: +10
Check & Savings: +20
Other: +11
No Info: +9

This is a Fair Isaac presentation to the FTC from which these figures were taken. There's also a bunch of other data concerning credit scoring rationale and performance.
posted by meehawl at 5:05 PM on December 20, 2004

Does anyone know if there's a bittorrent of this (or other) recent Frontlines floating around. The version they put online is unwatchable and netflix doesn't seem to stock 'em...
posted by ph00dz at 5:08 PM on December 20, 2004

I watched this when it was on television several weeks ago. The show was amazing. As the Harvard University contract law professor pointed out ... this is the only industry that can legally change the price of what you bought (in this case credit) AFTER the fact. And the fact that the Treasury Dept has taken away investigations from state authorities only to sit on them is disturbing. Especially when the industry is very politically active, and the head of the Treasury Dept. is appointed by the President . Interestingly, Elliot Spitzer, one of the Attorneys General in the program that has fought with Treasury over the squashing of these investigations, has just announced that he will be running for Governor of New York.
posted by R. Mutt at 5:11 PM on December 20, 2004

This practice is called the "universal default" clause and increasingly is becoming a standard clause in credit card agreements. According to credit card executives, the logic behind universal default is that the bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased.

And best of all for their stats on the matter, it's self-fulfilling. At least, it damn well would have been in my case if I hadn't had a few extra thousand bucks coming in from contract work when my two credit cards, simultaneously, raised my rates from %12 to, oh, 26%.

Seriously, how is this helping me pay back the money there?

I asked why the rate raise, and customer service couldn't tell me. I asked for a reduction and they took it down to 21%, with a promise to lower it again later.

I took my next $2000 bucks, paid off 1/3 of the debt, and rolled the rest into a personal loan from a credit union. Suddenly I have offers once a month for rates as low as 3% "for the lifetime of the loan" from these people. WTF? Now I'm supposed to trust them because they offer me a lower rate? If raising my rate before mitigated your risk, how does giving me a big huge lower rate mitigate your risk?

These guys need to be slapped, and hit hard and where it hurts.
posted by weston at 8:12 PM on December 20, 2004

Anybody remember the infamous CreditMaster program of the '90s? Solve these problems right quick, methinks.
posted by TheNakedPixel at 8:47 PM on December 20, 2004

ObSnark: If "Frontline" had a documentary claiming it's dark out at midnight, I'd get up and double check.

You can't UNtoast credibility.
posted by RavinDave at 8:58 PM on December 20, 2004

Have you seen Frontline's Ghosts of Rwanda? Now that is an amazing documentary... Hands down the most moving non-fiction film I have ever seen.
posted by Shanachie at 7:38 AM on December 21, 2004

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