Late Credit Card Payers Not Poor, Just Disorganized
Posted by admin in Credit
Interesting article from The Wall Street Journal today on a study that attempted to find out if people who paid their credit card bills late did so because they were broke or because they weren't paying close enough attention to the bills' due dates. They found it was the latter:
Among the 90,000 Canadian cardholders who were studied, a sizable share who faced penalties for missed payments or for surpassing a credit limit, for instance, actually had enough money in their bank accounts to avoid the added costs, the study found. Instead, the authors conclude, inattention or carelessness was often the cause of the problem.
What I also found interesting was this quote, which basically says the lazy customer is better for card companies than the poor customer with high interest rates:
"Individuals who make such mistakes can be very attractive to the banks, because while they pay the penalty fees, mistakes caused by inattention do not necessarily signal an increased risk of future credit-card default," economists Barry Scholnick of the University of Alberta, Nadia Massoud of York University in Toronto and Anthony Saunders of New York University wrote in a paper presented Friday at a conference of the federal reserve bank of Philadelphia.
So the credit card companies have a good stable of customers who can afford to pay all those late fees without the risk of them completely defaulting on their credit card. From the card companies' perspective, those are great customers!
I don't find the study results too surprising, really. In many arenas, it is the lazy or inattentive customer who companies love. Your cell provider gives you a good deal upfront in hopes you'll never again compare their rates to others. The cable company gives you free movie channels for three months and charges you if you don't tell them you don't want them at the end of the trial period. Magazines give you three months free in hopes that you won't bother stopping the subscription once it's time to pay. And, of course, banks offer credit cards with interest-free introductory periods in hopes of you racking up some balances that will be profitable for them down the road.
Those examples are a little different than not paying your bill on time, but the point is that not paying attention will cost you.
I hate to admit that I'm pretty lazy, and I have been snookered a time or two by this kind of stuff. These days I generally don't go for any free/discount offer unless I already know I'd be purchasing that item anyway. And I've even missed a few credit card deadlines after vacations or other life distractions. There's too much to think about sometimes, you know?
You can leave a response, or trackback from your own site.
Not to spam the comments or anything, but I feel that this trend is a silly way to loose money. Letting credit card companies get rich off of our over-crowded todo lists sucks.
But this was something that me and my business partner were facing as well. And because of it, we built a product to do the thinking for us: billQ (http://www.mybillq.com).
We hope that it addresses exactly the point you made Justin… that “there’s too much to think about”. So if billQ can help reduce this stress a little, we’ll be happy.