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May 21st, 2009

I’m getting a “free ride” on my credit cards, and I like it



After reading our recent post on the credit-card changes coming our way, I came across this interesting observation in a NY Times article:

“There will be one-size-fits-all [credit card] pricing, and as a result, you’ll see the industry will be more egalitarian in terms of its revenue base,” said David Robertson, publisher of the Nilson Report, which tracks the credit card business.

People who routinely pay off their credit card balances have been enjoying the equivalent of a free ride, he said, because many have not had to pay an annual fee even as they collect points for air travel and other perks.

So, just as responsible mortgagors are subsidizing the home loans of those who haven’t been responsible, now it comes to pass that responsible credit-card users will subsidize card users who aren’t as… discerning.

I’m with Ann Althouse on this one:

I’m one of those people that pay the entire balance every month to avoid paying any interest, and being told I’ve been taking a free ride all these years does not soften me up to pay my supposed fair share to support the credit card system. I just won’t use the card if that’s the deal. I’ll switch to a debit card or pay cash.

Read her post for an interesting back-and-forth on the pros and cons of using a debit card.

I don’t have one yet, but I’ll be looking into it; I’ll be (insert mild oath here) before I’ll readily succumb to punishment for being a responsible credit user. Here’s a handy FAQ on debit card that already enlightened me. I didn’t know, for example, that there can be a difference between a PIN transaction and one that requires a signature. Sheesh!

I have been told that it’s a really good idea to not link a debit card to your primary checking or savings account; I’ve been advised instead to open a new account and not keep a lot of money in it. It may be a bit of a pain, but online banking makes it less so, yes?

As a debit-card noob, let me ask y’all a couple of questions: How many of you regularly use a debit card? Do you pay fees for using it? What’s your bank’s policy on unauthorized use? And do you have a separate account for your debit card?

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4 Responses to “I’m getting a “free ride” on my credit cards, and I like it”

  1. Jake Says: May 21st, 2009 at 9:15 am

    I do have a some credit card debt that came from a divorce! Money well spent haha.. But.. since I started my Internet Marketing adventure, that debt is being paid off rapidly and then i’m DONE with credit cards!

    My debit card though is my life’s blood haha… Can’t live with out it since i never carry cash!

  2. Tim Manni Says: May 21st, 2009 at 9:41 am

    I’m going to read that FAQ and fast, because, I’m with Jake, I use my debit card all the time — if I have cash I’ll spend it. Despite the new rules, I’ll keep my credit card for my credit score’s sake. I’m interested to see if the FAQ mentions ways to pad your credit score just by using your debit card.

    Nice post Paul,

  3. Paul Havemann Says: May 21st, 2009 at 9:13 pm

    As a followup, I need to see whether there’s any truth to the “cancel your card, damage your credit score” meme. If so, then I’ll just squirrel the card away for emergency use.

  4. Tim Manni Says: May 22nd, 2009 at 9:37 am

    Hey Paul,

    Here’s one of our posts from the beginning of March which will help answer your question of “is there any truth to the ‘cancel your card, damage your credit score’?”

    Financial expert Peter G. Miller says:

    “Part of your credit score is related to the amount of consumer credit that you have and the amount that you use. So, if you have five cards that each allow you to purchase up to $2,000 you then have $10,000 in credit lines. If you only use one card and have a $1,000 that’s relatively good news because you’re only using 10 percent of your available credit. (Better news would be if you paid off the $1,000 and did not pay interest and fees through the nose.)”

    “Say you cancel the four cards you don’t use. Now your available credit limit is $2,000. You’re using 50 percent of your available credit, not 10 percent. That’s not so good. Your credit score will go down.”

    Here’s Miller’s blog post on the same topic: http://www.debtcity.com/credit-cards/should-you-cancel-old-credit-cards/

    Hope this helps,

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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