Graham Jagger wrote:
I think that is all a matter of perspective. As the consumer you clear your CC debt monthly to avoid interest charges. Sure you show you can pay. That is a good thing. From the creditors standpoint, not so much. They like a revolving balance. They make money. That is what they exist for. As long as your credit:debt ratio is not bad you can get loans and decent interest rates. In relative terms. The 20% down thing on houses is tough for many. A good thing if you have the money though. The 100% and 120% loans banks were doing is part of what got them in so much trouble.
Actually, the credit card companies should love those that don't carry a balance, but charge up a lot each month. This client carries very little risk, yet generates a lot in merchant fees. Visa/MC, AMEX, etc. all charge a merchant fee and the banks get a portion of that for each charge. Back when I was with Wachovia (pre-merger with Wells Fargo), they paid around $40MM to have Visa on their debit/cc. Yet, they made 2x that in the transactions... and Wachovia was had very little presence in the credit card space. Banks are quickly realizing that the days of people running excessive amounts of revolving debt are quickly going away. In the last year, the US consumer reduced it's revolving debt by more than 7%. From 2002-2007, revolving debt increased by double digit gains.
As for loans, 120% loans started a lot of trouble, and while 100% loans were bad, the biggest problem was interest only or negative amortization loans. This allowed the lenders to get you into something that you could afford interest payment only on, or even less in the case of negative amoritization... In that case, you might as well have been renting. Granted, it was time where everyone believed that house prices would just continue to rise to infinity, instead of seeing it all as an enormous bubble. - AB
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