Ask the Experts: Credit Cards | WalletHub
Dr. Agus Harjoto Commentary Featured in WalletHub
October 5, 2017 | 2 min read
Should everyone have at least one credit card?
No. Although credit cards are convenient to use, there are fees associated with them that most credit card owners do not realize. Credit card companies commonly charge businesses who accept them as a method of payment 2% to 3%, which in turn gets transferred back to their customers, resulting in higher prices. Also, the financial industry has started to move toward mobile wallets, which also provides similar convenience to the credit card. Last but not least, credit card holders must be aware that banks who issue credit cards are not giving money for free. They issue credit cards to generate revenue and profits.
Has it become easier or harder to get a credit card in recent years?
It seems to be easier these days to open up a credit card account. Individuals need to establish their credit history first, usually by opening "secured credit cards," which are credit cards secured by a cash deposit in a checking account. Once individuals successfully hold "secured credit cards" and keep payments on time for 12 months, their credit history is established, and they start receiving many credit card offers from different banks and institutions.
Are credit cards safer now than before the Great Recession?
While statistically, we would expect to see a greater default rate on credit cards today, the industry has grown significantly compared to the Great Recession. The revenue from credit cards -- minus all losses from defaults (individuals who can't pay their credit cards and declare bankruptcy) -- is still growing significantly. Credit cards have become one of the most lucrative revenue generators for financial institutions.
What tips do you have for someone who is applying for a credit card?
Look at the fine print. What are the benefits you are expecting to receive and what are the interest charges, annual fees, hidden fees (like foreign exchange fees, transaction fees, cash advances fees, late payment/overdue fees, etc.) and how easy is it to cancel. Now, most bank employees are given a target to increase the number of opening new credit card accounts. So, it can be hard to cancel sometimes.
Are consumers good at picking credit cards? What are the biggest pitfalls?
Generally, consumers fall prey to the gimmicks on the credit card benefits, and do not thoroughly read the fine prints on their responsibilities (fees and interests associated with the credit card). Credit card companies also encourage consumers to just pay "minimum balance," which is a bad suggestion because:
- It encourages consumerism (buying something I want, not something I need) and dependency to the credit card;
- They accumulate debt from unpaid principal payment very quickly.