January 10, 2019

Get Your Act Together

I saw an interesting stat the other day.

According to Axios, “5% of Americans with checking accounts rack up more than 50% of all the country’s overdraft and bounced check fees.”

These fees add up to… $35 billion.

Imagine the type of person who consistently gets hit with overdraft and bounced check fees. Now imagine a $35 billion wealth transfer from those people to bank shareholders.

I am no Elizabeth Warren, and railing against the banks is not my angle. The fees are there for a reason. The fees—which average $35 apiece—are not very large.

Full disclosure: I bounced a check when I was 22. I do not remember the circumstances. That was the only time.

Anyway, how do we get people to stop doing this?

My heart does not bleed for them. Part of this is just social Darwinism, the strain of which Wall Street people especially like. I would guess that bounced checks are loosely correlated with intelligence, as a lot of things are. But some of it is just disorganization.

Get it together, people!

Nowadays, everyone is walking around with these little supercomputers that can instantly inform them when their bank balances are approaching the zero bound. So overdrafts are even more inexcusable.

The other way around this is to make sure that you have enough money in the account to cover routine expenses. I get that not having enough money is often a big problem. But if abject poverty is not your affliction, remember that I have advocated several times that one should carry around a great deal of cash.

Oops

The credit card delinquency rate is 2.4%.

Some of this is because people are broke. A lot of it is because people just forget to pay the credit card bill.

Again, I am not sure how this happens. They send you an email when your statement is ready. Do you not check your email? Also, you can set up automatic payments, that is, if you’re not afraid of getting an overdraft in your bank account.

Here’s my particular hack: I just memorize the day of the month that the credit card bills are due.

I have three cards I use all the time—I know the dates the statements are generated and I send payments in promptly. When I say promptly, I mean right away, because otherwise I will forget, and that email from the bank will drop out of sight in my email account.

If you don’t want to memorize those dates, you could set alarms on your phone.

You miss a payment and you get charged interest. You may even get charged a penalty APR—even more interest.

Two Types of People

There are two types of people with bad credit. People who are genuinely dirtbags who don’t pay back loans, and people who are just slobs. If you have a bad credit score, it is because you are a dirtbag or a slob. Generally speaking.

A third possibility is that you simply borrow a lot of money. So you have high debt utilization, but you get a low credit score because the rating agencies think you will default on it eventually.

This issue of The 10th Man deals with the slobs. I’m not sure how I can help here, but let me try. Pay your bills on time. Is that helping?

By the way, the three rating agencies will soon take into account bank activity when computing your credit score. Yes, overdrafts will affect your credit score. Perhaps someday, forgetting to pay your cell phone bill will also affect your credit score. You know what—it should.

A credit score is a measure of your character. I’ll go further. A credit score says more about your character than, in many cases, a criminal record. A criminal record is a snapshot of your behavior at a brief moment in time. Sometimes good people break laws now and then.

But a credit score isn’t a snapshot of your behavior at a moment in time. It establishes a pattern of behavior over years and years. There is a lot of data that goes into a credit score.

I would rather date someone with a criminal record than a bad credit score.

When you are applying for a mortgage, the loan officer is going to run your credit, and he’s going to know in an instant if you qualify for the loan. IS THIS GUY GOING TO PAY US BACK? Let’s plug his Social Security number into the computer and get a statistical measure of his character.

Some people don’t like that they’ve been reduced to a number. I like it. There is a lot of math that goes into that number. We can measure very precisely whether you are going to pay back that money.

To end on a good note—consumers are actually getting better at paying their credit card bills, and credit scores are going up. This is terrific.

I wish we could say the same about corporations.

The Final Monthly Dirtcast

That’s right—please tune in to hear the final episode of The Monthly Dirtcast with my friend Tony Greer. It’s been a great run. On to bigger and better things.

Enjoy.

Jared Dillian
Editor, The 10th Man

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