Master Your Card » Mike

Confessions of a Credit Addict

Mike — Sat, 08 Mar 2008 15:12:13 +0000

Hi. My name is Mike. And I’m a recovering credit addict.

Ten years ago and fresh out of high school, I was every credit company’s wet dream. I was a twenty-something child of America’s ever growing consumerist culture with a want – a need, a hunger – to spend. And lenders were all too happy to oblige. I could’ve wallpapered my granny’s two-story house with the daily credit offers I received in the mail.

The mindset of a credit addict is not entirely different from the flawed comprehension of finances we have as children. My mother would visit the ATM, punch a few numbers, select how many 20’s she wanted, and – BAM! – hit the jackpot every time. As a child, I never questioned the source of this money. It never occurred to me that this cash was attached to a bank account with a finite amount of cash available to my dear Mum.

It’s the old adage: out of sight, out of mind. Credit cards allowed me to enjoy a seemingly limitless cycle of spending without consequence. Sure, the bills would come some day. But that day was far enough into the future that I’d cross that bridge when I came to it.

I spent three years living high on someone else’s money: high end televisions, a $50,000 sports car, an overpriced wardrobe from Nordstrom, jetting off to Montreal every few weeks for booze and endless parties. With a six-figure salary, I could’ve paid cash for my stockpile of material goods, but I chose to charge it all on plastic and spend my own hard-earned cash.

Then the very real and plausible happened. That which I most certainly wasn’t expecting let alone planning for: I lost my job. The incoming vice president of my company’s web division decided that “the whole internet thing” really was a dead end. So they closed shop.

In the two months that followed – in the undertow of the dot-com bust – I fell irrevocably behind on every one of my bills: car payment, rent, utilities, credit cards. Everything.

Fast-forward six months and I’d defaulted on all my debts. I was forced out of my apartment, moved in with my girlfriend, lost my car, and received a steady, daily stream of nastygrams from creditors and, worst of all, the federal government crying foul about my student loans.

What followed were some of the worst years of my adult life – financially and emotionally. I was categorically denied credit at every turn. I believe – though can’t prove – that my poor credit cost me several high-paying job offers. And my girlfriend and I were nearly turned down for our dream apartment together because of my credit history.

It wasn’t until 2006 that I finally qualified for an auto loan on my own. At 19% interest.

After fighting with the credit bureaus – via countless nasty e-mails, letters and phone calls – for years, my credit scores now hover around 600. It’s been a slow climb out of the hole I dug myself into, but I’m slowly putting that past behind me.

Credit addiction and its inevitable fallout not only affect your financial health, but your personal wellbeing too. Like any addiction, I believe it is possible to kick the habit. It just takes a great deal of willpower, patience and a serious shift in one’s financial mindset.

Or, as in my case, hitting financial rock bottom was a good kick in the arse as well.

Revolving consumer debt to hit $1,000,000,000,000

Mike — Thu, 28 Feb 2008 04:15:34 +0000

According to the newest data from the Federal Reserve, as of December last year revolving consumer credit card debt stood at 943 billion dollars. Revolving debt is set to reach one trillion dollars later this year. That’s *trillion* with a “tr”.

$1,000,000,000,000.00. One with twelve zeroes after it or – if you want to make it sound really massive – a thousand thousand thousand thousand.

That clears it up, right? Perhaps not. Most human beings have a difficult time comprehending just how large that figure is or how much money it actually represents.

First, let’s make sure that we have all of our zeroes and decimal points in all the right places:

Million: 1,000,000.00
Billion: 1,000,000,000.00
Trillion: 1,000,000,000,000.00

One trillion dollars – that’s enough money to buy Microsoft, Citibank, AT&T and Wal-Mart and still have enough left over to buy every man woman and child in the United States an IPod Shuffle. It’s more than the annual GDP of Pakistan, Malaysia, Nigeria, Ukraine, Ethiopia, Bangladesh, Vietnam, Libya, Venezuela and Thailand combined (that’s around 800 million people, by the way).

Let’s take a look at a few concrete, real world examples to help demonstrate just how much we owe the credit card companies:

America’s housing stock – the cost of every single house, condominium, apartment, trailer and shanty in the entire United States – is valued at ten trillion dollars. Consumer debt will reach one-tenth of that value this year. Of every. Single. Home.
Scientists estimate that there are as many as 400 billion stars in the Milky Way galaxy. And the entire population of earth is 6.3 billion people. (via NPR)
At our current rate of consumption, 1 trillion barrels of oil would fuel the entire world’s energy needs for another 33 years. (via NPR)
With roughly 100 million households in the United States, one trillion dollars averages out to about $10,000 per household.
One million seconds is approximately 11.5 days. One billion seconds is 32 years. One trillion seconds is 32,000 years. That means, if you were to earn one dollar per second or $3,600/hour, you would need to work for 31,500 years to earn one trillion dollars. That’s the entire time period from the existence of the wooly mammoth up until the present day.
… or put another way: a person working 40 hours per week, 52 weeks per year, for 40 years until retirement, would need to earn $200,000 per minute to earn one trillion dollars.
Since NASA’s inception nearly 50 years ago, they’ve only spent a total of $600 billion. (via Wikipedia)
In 2006, military expenditure from every single country on earth totaled just $1.158 trillion. (via Wikipedia)
Total combined sales revenue from the three largest American corporations – WalMart, ExxonMobil, and General Motors – was a paltry $900 billion in 2007. (via CNN)
With one trillion dollars, you could afford to buy 1,000 QM2’s – one of the largest cruise ships on earth – and still have enough left over to pay the crews for each one for a year. (via Cunard)
If you stacked $1,000 bills flat, you’d need a nearly 80 mile high pile to represent $1 trillion. (via HiddenMysteries.org)
The United States proposed federal budget for 2009 – that means every last penny the government spends of your hard earned tax dollars – totals $3.1 trillion.
A ladder of four foot high children standing on each other’s shoulders would stretch from earth all to way to Saturn’s rings.
1 millimeter (1mm) is pretty darn small – about the size of this period. 1 million mm is a short drive down your street. 1 billion mm is roughly 600 miles – partway across the United States. 1 trillion mm would take you 25 times around the world.
1 trillion dollar bills would stretch end to end from the earth to the moon and back again … over 200 times.
You could fill more than half of New York’s Empire State Building with 1 trillion pennies.

Imagine taking that bucket of change to the CoinStar machine!

5 Steps to a DIY LifeLock

Mike — Sat, 23 Feb 2008 00:00:04 +0000

“I’m Todd Davis and what I’m about to tell is absolutely true. My social security number is 457-55-5462.”

We’ve all heard the latest commercials featuring the president of Life Lock – a company that claims to have the most advanced identity theft protection anywhere – shouting his personal data from the rooftops. It’s attention-getting marketing for sure.

But how can he really get away with divulging such information? Is he crazy? And is it really worth $120 per year? I decided to take a spin of the LifeLock.com website to learn what their business is all about. As it turns out, every preventive service they offer is relatively easy, convenient and readily available for consumers to do themselves.

LifeLock: First, we ask the credit bureaus to set fraud alerts on your behalf.

This can easily be done on your own with thirty minutes worth of phone calls. Taking it one step further, thirty-five states currently allow consumers to “freeze” their credit reports, effectively blocking all access to credit requests in their name.

LifeLock: Second, unless your circumstances change and you tell us not to, every 90 days or so we ask the credit bureaus to do it again.

That’s awfully nice of them, but this is completely unnecessary, especially if you’ve placed a freeze on your credit report.

LifeLock: Third, we request that your name be removed from pre-approved credit card and junk mail lists and we keep making the requests as they expire.

You can do this yourself in five minutes. Visit OptOutPrescreen.com and follow the simple instructions to opt-out for either five years or permanently. Since personally registering for the site over two years ago, the quantity of mail I receive has dropped by approximately 90%!

LifeLock: Fourth, we order your free credit reports on your behalf from the major credit bureaus and they are sent directly to you. We do this every year. You can also do this yourself for free.

Exactly, so why pay someone else to do it? Visit AnnualCreditReport.com for more info. That’s it.

LifeLock: Fifth, … if your wallet goes missing, just give us a call and a specialist will help you contact each credit card, bank or document issuing company, cancel your affected accounts and complete the paperwork and steps necessary to replace your lost documents.

The key is “help you”. For various legal reasons, it’s not possible for them to actually complete this paperwork on your behalf. The brunt of the work here will ultimately fall upon you, the consumer, no matter who you have helping you.

Finally, the crux of their business is their $1,000,000 guarantee which, to be fair, sounds like solid, fall-back security for their customers. But let’s be honest: if the credit bureaus fail to alert you in the case of fraud or credit is granted on your behalf in spite of your having frozen your credit report – and any of this results in identity theft – you’re going to have one hell of a civil case against a whole host of businesses. I’d argue that’s comfort enough, so save your $120 per year.

Update: Howdy, Get Rich Slowly readers!

Why FreeCreditReport.com Is a Scam

Mike — Wed, 20 Feb 2008 21:39:36 +0000

In 2004, the U.S. Congress ordered the three major credit bureaus – Experian, Equifax, and TransUnion – to craft a website to allow consumers to order their credit reports online for free, once per year.

Not long after, Experian realized the legislation presented a clever, untapped marketing opportunity. They launched FreeCreditReport.com with the (obvious) hope that unsuspecting consumers wouldn’t know the difference between their not-so-free site and Congress’ mandated, free alternative.

Consumers have since been inundated on television, in print and, of course, online with ads for the FreeCreditReport.com website. That sing-song jingle (“Freeeeee Credit Report … dot.com!”) alone should be a crime, but that’s another topic for another day.

Blame it on their need for a catchy website name, but Experian clearly hid the fact that their “free” credit reports were only offered with consumer enrollment in the agency’s paid Triple Advantage program. In fairness, “Twelve ninety-five per month credit report … dot.com!” just doesn’t have quite the same ring.

Evidently, the agency’s marketing and business tactics were a little overzealous and more than a little shady – enough so that state and federal governments took notice. In late 2006, Florida’s state attorney general’s office launched an investigation into Experian’s business practices, citing a “failure to adequately disclose negative option enrollment … deceptive advertising, misleading domain name, and failure to honor cancellations.”

A previous 2005 investigation had the Federal Trade Commission charging that Experian “misled consumers about their association with the annual free credit report program”. The agency flatly denied the claim, but agreed to settle and refund $1 million in “ill-gotten gains” to consumers anyway.

Fast-forward three years and clearly little has changed. As of February, 2008, Googling the search term “FreeCreditReport.com scam” reveals a disheartening 35,000 results. These results include a staggering number of blogs and forums wherein consumers offer comments with variations on a common theme:

FCR is a shady and dishonest venture from Experian. I found that I was billed for a year of their service after giving my information for a one-time “free” check. When I disputed the charge, I thought that I had just been careless in enrolling. What a SHAM! – Erik, NJ (MSNBC’s Red Tape Chronicles blog)

As a victim of Experian’s ploy, I too count myself among the unsuspecting. My “unsubscribing” to their Triple Advantage plan required countless phone calls, e-mails, filling out online forms – everything short of a Papal intervention.

Bottom line: the safest way to request your free annual credit report is through AnnualCreditReport.com. Period. You can also obtain your free credit report – and free credit scores, too – through Transunion’s free trial offer. Click here for more details.

Why Pre-Approved Credit Offers Are a Myth

Mike — Sun, 17 Feb 2008 00:45:44 +0000

Way back when, in the dark days of my credit past, the postal service would frequently back a dump truck to my house and unload several metric tons of pre-approved credit card offers on my doorstep. Their snazzy, can’t-miss ad copy printed in a dazzling array of retina-burning Day-Glo ink was all too alluring: “$100,000 Line of Credit with 0% APR for Eternity”? Where do I sign up?

But, like the saying goes: “If it looks too good to be true, it probably is.” I’ll let you in on one of the credit industry’s (many) dirty little secrets: pre-approved credit card offers a myth. Bogus. Impossible.

The reason? Credit issuers can’t pull your complete credit report (also known in industry slang as a “hard pull”) without your express permission. They therefore rely on “soft pulls” which provide them with little more than your name, social security number, address and maybe your employer and favorite color. Soft pulls reveal nothing about your debt, past credit history or anything at all for that matter about your current financial situation.

How then, you might ask, is it possible for credit issuers to pre-approve you without knowing a darn thing about your financial health? It’s not. It’s a marketing ploy like any other: throw enough baited hooks in the water and someone is bound to bite. Fortunately for the lenders, this tactic works for a whole lot of unsuspecting someones. I’m still astounded by how many folks are gamed into believing that, with their 525 FICO score, they allegedly qualify for a 0.9% interest rate!

What’s worse is that every one of those pre-approved applications you mail back leaves a black mark on your credit report that announces to other prospective lenders that you’re in the market for [gulp] an even bigger line of credit. Tally up enough of these black marks, and you can seriously damage your credit score.

So the next time you’re thinking of accepting that “One Time Promotional Super Secret Squirrel For-Your-Eyes Only” credit offer that seems too good to be true, be sure to read the fine print. It also pays to be aware of your credit history and FICO score, to understand your current financial health and, above all else, to opt out of those darn pre-screened credit offers in the first place.