We have a buying problem. Our buying has given us a credit problem.  And our credit problem has made us slaves to the credit market.  Many Americans use their credit scores as a way to evaluate and judge their financial success in life. Through decades of marketing, product innovation, and the passing of personal finance myths from one consumer generation to the next, America’s financial services industry has most of us conditioned to focus our attention on improving the credit scores computed and maintained for each of us by America’s four major credit bureaus, Experian, Equifax, Innovis, and Transunion. Such effective conditioning comes as no surprise – it is, after all, the financial services industry that profits handsomely from us taking out mortgages, using credit cards, obtaining car loans, and otherwise borrowing money for just about anything we want to buy or do to enhance our lifestyles.

Your credit score helps someone, and its not you

Alas, the more we consumers borrow cash from the financial services industry, the wealthier the industry becomes and the poorer we become. This can readily be seen in the simplest definition of your wealth, which is determined by your net worth:

Net Worth = What You Own – What You Owe

The more you borrow from the financial services industry, the more debts you owe. The more you owe, the lower your net worth sinks toward zero, or even into negative territory. The financial services industry has a net worth too. But, what is true for your net worth is exactly the opposite for the financial services industry’s net worth – the loan you must repay to the industry is an asset the industry owns. The more the industry lends cash to you and other consumers, the more assets the industry owns. The more the industry owns, the higher the industry’s net worth rises.

Look at the recent VISA IPO.  Just have a look at it.  In a struggling market Visa is not only surviving but thriving.

From the financial services industry’s perspective, your focus on your credit score is a great thing. Your behavior helps the industry grow wealthier over time. The financial services industry has it good – the product it sells is cash, the price of its product is a given interest rate, the interest payments we make are the industry’s revenues, and thanks to the industry’s unique ability to scale by simply recycling our interest payments into still more revenue-generating product, the industry’s profits are hefty. The industry has made the rules of the game, and the ball used to “win” in that game is your credit score. So, as conditioned, you focus on the ball, trying to move it up the field toward the goal. But, clearly, your behavior – your focus on your credit score – is not such a great thing for you and your family’s wealth. While having ready access to cheap credit can be a good situation in which to be, obsessing about your credit score so that you can borrow more and more from the financial services industry could ultimately preclude you and your family from achieving true financial freedom and security in your lifetime.

I submit to you that you and your family don’t have to play the financial service industry’s game. You have a choice. You can change the game. You can freely elect to change your behavior. You can remove your focus on your credit score and, instead, focus your attention and effort on building net worth.  Get rid of what you owe, and add to what you own/save.  Its so simply, yet it will be your saving grace in the end, I promise.

I have a serious problem with being forgetful. I think that my girlfriend will, in fact, kill me someday due to me forgetting something big. If I didn’t have a routine about where I put things down, I would be completely lost in the world. But I digress: The other day I had just gotten done working out at the gym so I stopped at a gas station on the way home to pick up some of that wonderful almost-$4-Gallon goodness. I always swipe my card, put it in my wallet, and put my wallet back in my pocket. You know, pretty much what everyone does every time they buy something. Well, this time I didn’t have pockets because of my shorts. So I pumped gas, hopped in my car, and off I went, wallet still on top.

I didn’t realize my wallet was gone until the next day. If you have ever lost your wallet and been late for work, Im sure you can envision the next hour or so.

We’ve all heard nasty stories about fraud thats committed in your name using your credit cards, or SSN. My Aunt had her identity stolen from losing her purse and it was an absolute nightmare and included her being (wrongly) arrested on the highway and laying face down in cuffs in front of her daughter for quite a while….not to mention she is still trying to sort out all the financial ramifications. It reminds me of those commercials, well, they are funny, Ill just post one.

The absolute first thing to do if you think you have lost it in a public place is to make a quick call to the businesses to see if it has been found. If not, immediately call your credit card/debit card companies and cancel your cards. If it has been stolen, every second counts because thieves will do as much damage as possible as fast as possible. Its good to have the toll free numbers available.

Next, check all bank account balances and credit card records for unauthorized purchases. If there is activity file a police report immediately in the jurisdiction where it was stolen…this is mostly to show credit card companies you did your due diligence which will be important in getting reimbursed. Next call the three nation credit reporting organizations to place a fraud alert on your name and social security number. This is good because it means the banks will call you before any accounts or credit cards can be put under your name.

So what happened to my Wallet?

I was lucky, and someone turned it in later that day with everything intact. Its an inconvenience to have all of my usual methods of paying for things canceled, but its a small price to pay considering what could have happened if it had been found by someone less honest.

On a side note, I never realized until now just how FEW places take checks anymore…

If you liked this you might also like Identity Theft Repair Kit from Spend on Life.

Credit card week here at TPS has been fairly busy and so in my endless digging to defend you Ive come up with some extra things to watch out for. Your credit card is costing you money in ways you probably didn’t even realize. Thats right, that innocent little piece of plastic you’ve come to love (or hate) is actually hiding some secrets away.

1) Annual Fee
If there is an annual fee, make like a flock of seagulls and run far far away. The ONLY time this is acceptable is if the rewards program FAR outweighs the annual fee. This happens just about 0% of the time.

2) Rewards that really aren’t that rewarding
You finally saved up those 25,000 points to fly somewhere, awesome! Oh except you have to travel on certain dates….at certain times, and stay in certain places, oh and you have to book it a year in advance, oh and you can get bumped at any time….etc etc.

3) Cash advance fees
Never ever use your credit card to get a cash advance from an ATM. Card companies see these as loans. That means you’ll pay a 3% fee on the amount you withdraw, plus interest which starts accruing immediately. Interest rates on cash advances are generally ridiculously high. We are talking 10-30% kind of high. Thats a lot to pay just to get some cash out. Why on earth do you need cash that urgently anyway, and where the heck is your debit card?

4) Convenience checks are convenient for sucking you dry
Filling in convenience checks, which come with a lot of low-rate balance-transfer offers, is a terrible idea. These are treated as cash advances, and you may get smacked with a 3% fee, AND $5 to $10 minimum. As a sweet bonus not only do you get nailed if you use the checks, but card issuers will hit you with an average fee of $30 if the check is returned or stopped payment on. Even more awesome.

5) Lottery Tickets are treated as cash advances
Thats right , see #3 and don’t do it again!

6) Overseas? Get more Fees!
You will usually end up with 3% extra charged against you for “conversion” fees by both Visa/Mastercard and whoever the card issuer is. Ouch.

7) Pay by phone - More Fees
Paying by phone might cost you an extra $5-$20

Lose your statement? - More Fees
Thats another $15 probably. Unless of course you are using online banking (which you should be!)

9) Lose your card? - More fees
Theres another $20 most likely.

10) Late payment fee
This will cost you anywhere from $15-$25

11) Over limit uh oh fee
Go over your limit for even two seconds and you’re likely to get a nice $35 fee.

12) No balance at all fee
Thats right, you could get hit with a “Finance charge” for NOT having a balance. This is probably the most annoying of all credit card fees. Its small $2-$5 but it is absolutely BS.

13) Lack of use fee
This is rare anymore, but they may charge you for NOT using the card often enough.

14) Calculating interest from the time of purchase
Thats right, you could make a purchase, pay it off the next day and STILL get charged interest on the purchase.

15) Return Item Fees
You can be charged for returning an item you bought. Guess charging you interest on the day you bought it isn’t good enough, you need to pay a fee for returning it too.