Ok, so we’ve all heard negative things about so-called ‘deadbeats’. Generally speaking, the term refers to someone who fails to follow through in some way. What if I were to tell you that in the world of credit cards, being a deadbeat isn’t so bad?
What is a Credit Card Deadbeat?
According to a book called Maxed Out, written in 2007 by James Scurlock, the term ‘deadbeat’ was adopted by credit card companies. It refers to a credit card user who pays their balance in full instead of carrying a balance from month to month. This practice prevents the card user from incurring any interest charges. That prevents the credit card company from making money from that card user, except for the fee to the vendor for processing the charge. In essence, the consumer limited the profit they intended to make from the service provided.
One story in the book exemplifies the tone of the whole book. It’s a story recounted by Elizabeth Warren.
Elizabeth “was once invited by (a major financial institution) to help the company reduce its credit card losses. Armed with charts and graphs, Warren explained to a room full of executives that by taking into account the ability of their clients to pay before offering credit, they could dramatically reduce the number of charge-offs. One of the executives in the room pointed out that if they only gave credit to people who could pay it off, they’d never make any profit, and with that, the meeting was over” (Miller, 2011).
Strive to be a Deadbeat
The good news is – I’m telling you it is okay to be a deadbeat. Using credit wisely, as the proverbial deadbeat does, is the best way to maximize the benefits of a credit card while minimizing any negative impact. Simply said, deadbeats can beat the credit card system. That’s why they are not the preferred customer of the credit card company. They prefer customers who are willing to pay the minimum payment for the maximum amount of time at the highest interest rate they can tolerate. Those are their best customers, and they will gladly extend more and more credit to those customers and make more money off of them.
Your best bet to earning deadbeat status? Follow these simple rules:
- Find a credit card that does not charge an annual fee. They do exist.
- Only use that card to buy things you know you can pay for in full when the monthly statement arrives.
- Pay that monthly statement in full before the due date. In fact, some people who bank electronically use their credit cards as if they were a debit card. They do this by paying each transaction when incurred instead of waiting for the monthly statement. They pay it all month long, and it comes right out electronically from their funding account.
Doing these three things can help maximize the perks offered on the card. It can also help you better manage your monthly expenses and live within your means. Best of all, a good payment history will help build a solid credit score.
The Bad News for Deadbeats
I hate to be the bearer of bad news, but the industry has found a way to punish the deadbeat. Some innovative financial strategist has earned their pay somewhere. In the past two months, I have heard from two consumers who shared that they incurred a fee for carrying a zero balance. A fee for not using their credit card service.
Unfortunately for both, they incurred late fees for the zero balance fee as well. Why? Because they knew they had paid the card off but hadn’t used it, so hadn’t checked their statement. Both were able to complain and have the zero balance fees removed. Both still had to pay the late fees.
Only after receiving notice of a pending charge-off did they call their credit card provider. A charge-off is when an account provider has attempted but failed to collect payment on their account. In order to close their files, they sell the account to a 3rd party debt collector for a minimal amount and charge off the debt from their books.
The notice they both should have paid attention to, according to the customer services reps each of them spoke to, was sent to them the prior summer. A credit card company must notify you if the terms of your agreement are changing. They give you 45 days to opt out and close your account. If you don’t, they assume you have accepted the terms. In actuality, like these two, you probably never even looked at the email or the note on the back page of your paper statement.
Lesson for the Deadbeat?
If you are the wise credit user or the person striving to be a deadbeat, the lesson here is to pay attention. Pay attention to notices in terms of service. Pay attention to the types of fees your account can incur. Extra fees like an account maintenance fee or a servicing fee can add up and make using credit more costly. Pay attention to due dates to avoid late fees. Not only late fees but the added insult of a temporarily increased interest rate as a penalty. Again, you can avoid that penalty if you pay your balance in full on time.
If you aren’t sure about the terms of your credit card agreement, call the provider. The customer service representative should be able to give you that information. The phone number is on the back of your card. As a reminder, you can find all of your accounts listed together on your credit report. The contact phone numbers are there, too. To see your credit reports from all three major credit bureaus, go to www.annualcreditreport.com. You can access each bureau from there once a year for free.
So, being a credit card deadbeat is not so bad. In fact, it can be pretty darn empowering. Strive for that master level of credit card use to make the most of the perks you are offered. Pay attention to those terms of service that can change but not without notice. Lastly, seriously consider not rewarding these companies with bad practices by being their customer. Depending on the length of your relationship and your credit line amount, it might temporarily impact your credit score to close an account with a company whose terms no longer suit you. But in the long run, it will be better for your overall credit health.
Learn more about Credit Management
If you want to learn more about credit card terms, I have an opportunity for you! The September segment of the Financial Wellness Series will focus on credit use. Join me on Thursday, September 21 from 5:30 p.m. to 7:30 p.m. at the River Walk Center in Fort Pierce. The class is free and open to all without registration. The City of Fort Pierce and I are partnering together for this series to help people in our area be wise consumers. For more information, call me at 772-462-1895 or email me at cagator@ufl.edu. Spend a little time to save some money and gain financial skills.
Miller, Andrew J.. “Four Popular Books on Consumer Debt: A Context for Quantitative Literacy.” Numeracy 4, Iss. 1 (2011): Article 7. DOI: http://dx.doi.org/10.5038/1936-4660.4.1.7
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