The banking half of Corporate America wants you to owe them your soul. The non-banking half of Corporate America wants you to prove that the banking half is willing to lend you the rope to hang yourself with and may have already done so. Leaving you with less money to pay that non-banking half. At least over the long term. 'Tis a delicious quandary.
For those of us with positive net worth and decent discipline, a credit card (or debt in general) is simply a financial power tool, no different from a battery-powered screwdriver or Skilsaw. Using it we can do more and more easily without fatigue or hurting ourselves. The same tool in the hands of a toddler or a maniac constitutes a danger to themselves and others.
Don’t recall exactly where I came across it, but I’ve read that some financial institutions refer to those of us who pay in full every month as “deadbeats.”
The main reason rental companies want a “live” credit card is so that they can use it to charge you for any fines, tolls or any other charges that turn up after you return the car. Like a hotel, they will put a “hold” on whatever they consider reasonable - probably a couple of hundred, rather than thousands.
Incidentally, I came across a video the other day of a comedian telling a story about the deadly departed Mitch Hedberg (if you’re not familiar, he was a brilliant observational comic with a deadpan delivery).
Apparently, Mitch lived “off the grid” - he made good money, but he didn’t have a credit card. Instead, he carried a huge wad of cash.
Mitch was checking into a hotel room, and the clerk asked for a card. Mitch instead pulled out his money.
“How much do you need?”
“No, sir, we need a card.”
“But this [gesturing to his wad of cash] is what the card represents. It would be like if you hired a Frank Sinatra impersonator, and Frank Sinatra himself showed up, and you turned him away, because he’s not an impersonator.”
CC companies have tons of statisticians and economists and behavioral psychologists on staff to compute the optimal credit limit. Owing money isn’t making people less broke, owing money and paying at least the minimum off with a small chance of defaulting is optimizing the revenue of the CC companies.
They’ll tolerate us deadbeats but they love those who pay them lots of interest.
As mentioned by OttoDaFe
"…some financial institutions refer to those of us who pay in full every month as “deadbeats.”
Which ticks me off because even though I pay my card, and am therefore a “deadbeat,” they still got their transaction fees on the sale that I instigated.
This is odd to me. I’ve been paying off my CCs every month for years. I only have two CCs, but they both have very high limits. One of them allows me to up the limit annually through their website in a matter of a minute (Costco Citibank card) which I do every year. It doesn’t seem like they view me as a deadbeat. If they do view me as a “deadbeat”, what is the impact to me? Seems they keep extending more credit to me and I don’t see any negative impacts. I get a lot of cash back from Costco each year which I always appreciate.
I’m familiar with that, having spoken with somebody that lead a statistics department at a major CC company. He told me they were trying to programmatically identify “Minnesota Carpenters” among their potential customers using commercially available personal data. A “Minnesota Carpenter” is an archetypal wage earner who makes good money much of the year, but also predictably stops making money for much of the year (i.e. when it’s too cold to be framing houses). He racks up debt, say by Christmas, and then spends some months unable to pay his bills and accruing extra charges and penalties. Years ago failing to pay on a debt was considered a moral failing, but today it has become its own profit center and accordingly is cultivated for its own sake. They want people who earn enough to pay off their debt or at least pay it way down, but who then find themselves needing to go further into debt again, in a regular and predictable cycle. They want to encourage their customers into a life floating on the edge of insolvency, with short term debt service a major part of their lifetime expenses.
He once told me he thought it was ridiculous that the police and courts would trifle with muggers, car thiefs, burglars, and the like, because almost all the theft that went on in our country was done with the support and facilitation of the business world.
Actually, this, and seeing people flounder in crushing debt their whole lives, has probably colored my view against credit cards.
I strongly suspect that setting limits and giving cards so that there are zero defaults does not optimize their profits.
If the statistics tell them that there is a very low probability that you will ever default, increasing your credit limit can be done at very little risk to them, and is advantageous in that you might put bigger purchases on the card which gives them bigger merchant fees. They won’t make as much off of you as if you paid interest, but they’ll make enough.
Interesting. I remember that during the Great Recession Marketplace ran stories about how credit card companies, who were seeing more defaults, were working on detecting particular behaviors that might predict a default. For instance if they determined this guy was in the house construction business, and housing starts were way down in his area, they might decrease his credit limit or even cancel the card.
Totally agree, but I feel the best way I can stick it to the banks is to make money off of them, not have them make money off of me. Every free loan for a month, every cashback dollar I get is a small victory.
This is valid, but if you’re not in that situation… We have a pricy card, the Sapphire reserve–$550 a year, I believe, but you get a $300 travel credit, primary rental car insurance, travel insurance up to $10,000 per trip, airport lounge access, and 2x miles or more, so we’ve got a million FF miles in the account right now. They are super vigilant about fraud. We put everything on it. We’ve never paid a cent in interest.
This is why I strongly suspect that line about CC companies calling people who pay in full “deadbeats” is an urban legend. They still make their money.
I’m pretty sure that I heard, from what seemed to me an authoritative source, that the “people who pay their bills in full are called deadbeats” thing is pure bullshit.
About a year ago, after my wife and I received a fairly substantial inheritance, we were able to pay off all of our credit cards and finally become, except for our mortgage, debt-free. Know what happened almost immediately? Two of my credit cards were upgraded from “regular” cards to rewards cards, and the credit limits went up. I didn’t ask for that, it just happened. Certainly seemed like they were eager to do business with someone who had just paid off everything in full.
Since then we have been able to stick to the pay-the-cards-off-every-month model, and have gotten some pretty good rewards as a result. At about the same time, after my debit card got hacked, I switched to using credit cards for almost everything. I don’t know if the CC companies are disappointed that I’m not carrying a balance. But the fact that I’m using the cards a lot more probably pleases them.
Or just an in-joke. Having a joking hostility to your own customers is a pretty common in-group thing. But it tends to be misinterpreted when taken out of context.
Exactly. I never thought it meant the traditional definition of the word, but was used as a pejorative for those of us who are, in a small way, playing the system.
Of course they (the ever-ominous “they”) are getting the merchant fees. But from their point of view, if the merchant fees are 3% and the interest on the card is 18%, that’s 15% I’m denying them by willfully and maliciously refusing to run a balance. So I’m a slacker, or deadbeat.
Yes, I know the math doesn’t really work that way. I’m actually being nice.
