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A Credit Check Can Cause Financial Ripples

It is interesting to see how the dominoes fall in the financial world, and one of the most entertaining stories I have is from about 30 years ago as my wife and I were looking to buy our first house. By being a good consumer and looking for two different deals, I created an anomaly.

As we shopped for the first Big Cajun Hacienda,  Mrs. C8j and I decided we needed to shop around to get the best mortgage deal, that was possible at the time. At the time interest rates were very high and we were hoping to find as low a locked in rate as we could (it ended up being 12.5% for a five-year term). We spoke to our bank (at the time) Scotiabank. My brother had (at the time) a good deal (in his opinion) with BMO, so I went and spoke to them as well.

Both banks wanted to “pre-approve” me for a mortgage on the basis of my income. They both came back with about the same deal for me, so we were leaning towards Scotiabank (as they were our current bank). Scotiabank also suggested I apply for their Visa card to help with moving expenses and such. It seemed like a good idea (at the time).

Gift Cards, Cash
So Many Cards so easy to get these days.

The application seemed straight forward. Three weeks later I got a terse, but polite, letter saying that my application for the Visa Card was denied. There was no explanation but a note thanking me for applying.

I was mad. I phoned the number on the letter to get an explanation. Then I spoke to a very patient and nice lady at the Scotiabank Visa help center. She explained that my file had been flagged. Due to this flag my application was refused.

“Why was the my file flagged?”, I asked.

The answer was simple. My “credit file” had been accessed twice in the week before my application. This caused the system to kick out my application as high risk. Why did my “credit  file” get accessed? Remember those two pre-approvals? Those two procedures cause the whole system to suddenly view me as a bad credit risk. I was a bad risk because people were looking up information on my credit, as simple as that.

Once the patient young lady on the phone and I figured this out, she said she could put through my application, and get me the card in a few days. I decided not to do that, and decided to go with BMO instead.

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This was my first exposure to the Business of Credit, Mortgages and Banking. It was an eye-opening experience, and from that I have learned to be wary of banks, and to always ask questions about all processes no matter what transpires.

My credit card application was refused. Anybody heard of that these days ?


If You Have Credit Card Debt Don’t Invest

This is one of the great “to the point” statements about investing in a Business Insider’s article that Michael James sent me. Debt is the best investment to put extra money in, and it usually pays back very well too.

The clarity of that one statement is astonishing to me, it cuts through all the garbage and gets to the actual point. So the real quote is #35 on the list:

“If you have credit card debt and are thinking about investing in anything, stop. You will never beat 30% annual interest.”

Read more if you wish.

Is that just so stunningly clear that it can’t be ignored? It is for me.

Credit Card Debt

I can hear the nay sayers with their commentaries already:

  • No Credit Card charges 30% right now, most only charge 20% or less. So what? That just means you are earning a little less when you invest in paying the debt down (and it should pay down faster).
  • The Stock Market is paying over 8% a year, you’d be a fool not to take advantage of it. Pardon my arithmetic, but 8%, 10% or even 18% is not 20%, now is it?
  • If you don’t put money away now, it won’t have time to grow. Conversely if you pay down debt now, it won’t have time to grow, now will it?
  • You always need an emergency fund, why not invest it? Wow, that’s astounding, an Emergency fund is to be there if you need it, investing it is just not a good idea (IMHO). Why not “invest” that money in having no debt, so when the Emergency happens, you aren’t worrying about paying off debt at the same time?

Why don’t investment professionals espouse paying down debt first? I have heard some actually do (or at least send people away), but honestly there is no money for an investment professional telling anyone to pay down debt (unless they get paid by the visit).

I await the comments of how I am being simple (or worse obtuse), have at it commenters.


Did Shylock Have the Right Idea?

In the Merchant of Venice, Shylock (the alleged villain) is portrayed as a loathsome character (Shakespeare shows how Anti-Semitic the times he lived in were) who wants to exact his vengeance on a “hero”, Antonio, by making the terms of a loan include a pound of flesh if money loaned by Shylock is not paid back by Antonio. Spoiler Alert when Antonio defaults on the loan Shylock never gets his payment, however, I have to wonder, did Shylock not have the right idea?

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Currently if I have a credit card, I can borrow money with very few physically painful consequences, other than adding more to my current debt load. Eventually I could get to a point where the credit card company might call a collection agency, and I might have to see a credit councillor or even worse, declare bankruptcy.

Still doesn’t really seem as bad as a pound of flesh, does it? Yes, it’s a terrible thing to live through, but let’s ask the question would anyone use credit as easily if the consequences were as severe?

In the horrible days that were the 1980’s loans were at 19%  and that was for a mortgage, not for silly things like credit cards (which weren’t being handed out like condoms during Frosh week). Would higher interest rates cause a less loosey goosey attitude towards borrowing in the 21st century? Maybe, but 15% for a mortgage and a threat of losing a toe if you miss a payment would certainly lance any housing bubbles quite quickly, and cause most folks to really figure out if they can afford the $500K condo they think they can afford.

Shylock’s only short coming was that he didn’t specify that he wanted a pound of flesh ,”… organs, blood, bone and all”, then again, if you are writing a contract where you are attempting to maim your customer, would the wording really matter that much?

Am I being facetious? Perhaps, but it will be quite interesting to see if (and when) interest rates finally return to a more normal level.


When did You Get Your First Credit Card ?

I got my first credit card ( a CIBC Visa with a $500 credit limit) at the CIBC in the basement of the University of Waterloo’s Federation of Students building. What was ironic was that I had applied my first year and was turned down, but as soon as I could prove I was in the CO-OP program, suddenly I was a good enough risk to get the card. At the time I really only used the card to buy books, and rarely even carried it with me.

Credit Card security

These days all three of my daughters have had offers to give them Credit Cards, and my assumption is that it is mostly on the back of my income (i.e. if she gets a card, Daddy will pay it off for her), which infuriates me (I believe I swear loudly and tear up the “complimentary credit card offer” letter shows up, every time (at least that is what my wife tells me)).

Now you can even buy “pre-loaded” Credit Cards for kids to use, that sound interesting, but I haven’t used one, so I can neither confirm nor deny that it is a good idea.

This whole topic started with a discussion I was having with my Mother and she voiced to me how concerned she was back in 1982 when I got a Credit Card, which really does show the difference in the generations. My Mother’s generation has always viewed a Credit Card as a dangerous liability that must be closely managed and carefully used (I am paraphrasing, and generalizing), because my generation seems to have a more “Magic Money” attitude towards instant Credit that the Credit Card gives you.

When Did You Get Your First Credit Card

OK readers, when did you get your first Credit Card? How old were you, and why did you get it?


Revisiting Cancel Old Credit Cards

Back in 2005 I wrote a post called Cancel those “old” credit cards.

The post itself was a recap of what happened when I forgot to cancel an old CIBC credit card, in fact the exact quote is:

About a month ago I got my monthly CIBC Visa statement. Now, I stopped using this card about a year ago, in favor of a President’s Choice Mastercard (which gives me grocery points). I open the statement assuming my normal 50 cent credit balance (I like pissing off these folks by overpaying by less than a dollar, and thus their systems then send me monthly statements, costing them money), but NO, I owed $60!

The writing style is very much on the rant side of things, and for some reason I hadn’t figured out that bold might work just as well as overly capitalizing words for emphasis.

After a ranting explanation of how I got the fee taken off the bill I summed things up with:

The Moral of this Essay?

  1. If I had CANCEL‘ed this card, this would NOT have happened in the first place!
  2. ALWAYS check your credit card statements (I find at least 1 or 2 spurious charges on my cards EVERY YEAR).
  3. With all of the personal information theft going on (if you have GM Visa card, you are now a victim) having the minimum “points of attack” (i.e. credit cards) minimizes your possible damage in this kind of incident.

All of these points are valid (if not a little overly dramatically stated), I am impressed that I actually caught the whole identity theft angle on this as well, but it is important to cancel those cards that you are not using, or they can end up biting you in the butt.


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