Why credit cards are bad for college students

Credit cards are great for me. The card issuers think I'll be nice to them too, and they keep offering me credit cards that I refuse - I already have three, and that's enough, thanks.

In fact, I'm a bad, no, really, credit card customer. This is because I have never borrowed on a credit card. Each of my cards has a '100% payment on due date' arrangement. This makes me a 'transactionality and not a 'revolver' (nothing fatal, relax - I'll explain soon).

Traders like me use their cards for almost anything they buy, whether in a store, online, or even to buy a loaf of bread from French Loaf. It is not because he is an ardent follower of Modi-ji and deeply believes in Digital India. This is because making purchases on a card costs nothing extra than paying cash. In contrast, there are two smaller benefits—credit for up to 45 days (you only pay when the monthly bill becomes due), and the accumulation of points, with which you can (eventually) buy something useful, or worthless. Huh.The millionaire next door pdf download

The card issuer usually loses money on customers like me, as it receives a small interchange fee (around 0.5% or so) on every transaction, but has to pay the shop, or seller, upfront and, therefore, bear the interest cost. on the money until I settle my bill.

But card issuers tolerate clumsy customers like me because they milk revolvers (a poor analogy, but true).

A 'revolver' is a credit card holder who does not pay the full monthly bill. He pays only 10% of it. The bill balance is 'revolved' (carry forward), on which the card issuer charges a hefty interest of 2.5%-3% p.a., i.e. 30%-36% p.a. The best customer for a credit card company is the permanent revolver, who keeps paying 10% of the bill every month and doesn't care about the interest rate.

Typically, if 60% of customers are revolvers and 40% are transactional, the card company is doing fine. If the ratio is 75/25, it's doing great, thanks. But hold on - 90/10 means dark clouds are over, and 100/0 means bankruptcy. A high revolving rate can be too much of a good thing! Credit score myths that can harm financial health

For the customer, 'bad' is when he defaults on a card payment. He starts getting calls, first in a polite tone, then in a harsh and harsh tone; Finally, a tough looking man comes to his office or door and starts shouting for payment, so that everyone around can hear and he is embarrassed to pay. That's when he faces a mountain (exactly—a hill) of debt, including all kinds of punitive interest and default charges, that increase the amount he has to repay.

For the card company, 'bad' = extreme crime. Let me explain a little

A card issuer has a large fixed cost: a sophisticated computer system, a 24x7 call center, salespeople, borrowers, advertising and marketing. It starts earning money only when it has:

- A sufficient card base, more than 1 million;

- revolver rate of 60% or so; And

- Bad debts (crimes) not exceeding 5%-6%.

The main number is crime. Credit card issuers do, in fact, tolerate a 'reasonable' amount of bad debts, as it shows that the level of risk is optimal, that is, sufficient to show that they are attracting customers, who are always Money is tight, so that they can keep revolving and pay interest, but low enough to maintain profitability.

But if the offense rises to 10%+, all profit will disappear. Any more, and the card issuer will be at a loss and there will be 'alarm and despair' in the management.

Now - ugly.

Credit cards are a business that has a few ways to make money- interest, annual fees, interchange, late fees and foreign exchange. But there are many ways to lose money. That's what makes it an unattractive business for both the issuer and the customer.

The biggest issue is that of fraud. For several decades, issuers have been installing new and more sophisticated fraud prevention systems; But, whatever they do, it seems that fraudsters are caught very quickly. Online shopping with credit cards has opened up new possibilities of stealing money from credit cards. Sometimes, the card issuer takes a hit; Other times, the processing or paying bank (called the acquirer) incurs a loss.

It can also be ugly for the customer. My wife didn't hear many pings on her mobile phone in the early hours of the morning. Then got a call from the issuing bank "Have you done such a transaction?" It turned out that several fraudulent transactions were made on his card in quick succession (hence, ping - SMS from the issuer) until the fraud detection system detected that something was wrong and blocked the card. More than 50 thousand rupees were missing. Essay on My Fitness Mantra on AKAM in English

I went to the police station to file a report. First they asked "Was it a credit card or a debit card?" The cops lost interest when I said it was a credit card

When other types of fraud happen the credit card business becomes unattractive for the issuers as well. There are two major ones: hackers enter systems and steal credit card data and collude with customers to create bank statements and ID cards to gain approval for new cards. Salespeople usually worry about their goals and incentives, not future bad debts.

But whatever its color—good, bad or ugly—the credit card is here to stay and it's up to everyone involved to take advantage of it to save their skin.