If you are searching on the internet what is credit system in banking, the credit system in finance, and how the credit system works, then you have come to the right place, here we will tell you very good information about this topic, you read this post completely so that you will get the credit system good knowledge.

An Introduction to the Credit System

Fighting for a Chance – credit system in finance

Donny protected his country. As a firefighter trained to fight large forest fires he

was sent around the country to protect people and property from the forces of

nature. Americans could go about their daily business, and could sleep safely at night

with their families because of Donny and his firefighting unit, experts at fighting

wildfires, and preserving forests, and family homes. He felt satisfaction in knowing

what he did matter.

Donny was a recent college graduate. Like over a third of all college

graduates he had student loan debts; in his case over $20,000 was due. Like over

half of all college students, he had more than two credit cards with an unpaid

balance of over $2,000 each. In Donny’s case, the total was $4,500. His first card

had been burdened with charges to impress a worthy co-ed. The relationship

didn’t last. The debt did. His second card was from a national department store

chain. He received 10% off everything in the store when he applied for the card.

He was still paying off several of the shirts he no longer wore.

Donny had recently financed the purchase of a new Ford F150. It was a great

truck he needed to have. He was certain he could make all of the payments. The

local fire department paid him like clockwork.

Donny was sent to fight a huge summer fire in Oregon. Another mission,

another job to do. In the past, when on the fire lines, Donny had always been

able to receive his bills and make payments on a timely basis.

Then a white powder was found on an envelope at his local post office. It

was anthrax. The post office was shut for three weeks while the matter was

carefully investigated. The mail didn’t move for another six weeks.

Donny didn’t receive his bills. Meanwhile, the Oregon wildfire threatened

towns and property in all directions. He was on the lines for seemingly the entire

summer. Like all of the other firefighters in his unit, he assumed that the

creditors were aware of the situation and would arrange a grace period for

payment. After all, they were serving their country. But the creditors didn’t care what Donny was doing. He was now two

payments late on all of his bills. That was all that mattered. Explanations,

whether reasonable, justified, or good, were just excuses. And all excuses were

bad.

Donny’s credit card had a Universal Default Clause, one of the most odious

of all credit traps, and one that was restricted later by the Credit CARD Act – too

late to help Donny. By being one day late on any payment to any creditor, the

credit card company could charge a default rate on any existing balance of up to

29.99%. This meant that in Donny’s case he had to pay an extra $2,500 a year

for being one month late on another creditor’s bill.

Donny missed two car payments while fighting the huge Oregon fire and the

F-150 was repossessed. Because he had just purchased it, the money owed far

exceeded the artificially low value it was sold for at auction.

Finally, the horrendous Oregon wildfire was brought under control.

Donny and scores of other firefighters returned home from a very difficult

mission. In gratitude, the country’s financial establishment unleashed a torrent of

debt collection sharks on the returning heroes.

what is credit system in banking, the credit system in finance, and how the credit system works

And so in this upside-down world where criminality is a cost and

The firefighters were incensed. They had served their country. Through no

fault of their own, the mail had been delayed. Under such circumstances a little

leeway was appropriate. If they were in the military, the Service Members Civil

Relief Act could have shielded them from credit sharks. Why shouldn’t

firefighters be equally protected? But the creditors didn’t care. They had rules

and standards. And they made a great deal of money when people paid late.

Some of the firefighters were now being forced into bankruptcy. Others lost their

homes; many had their futures seriously delayed. A number of them wrote their

Congressmen demanding relief from the ingratitude of the nation’s credit

establishment. But individual firefighters didn’t contribute to Congress.

And yet the credit card companies, leasing companies, banks, and other

lenders spent millions and millions of dollars to influence Congress. There was

no contest.

what is credit system in banking, the credit system in finance, and how the credit system works

And so in this upside-down world where criminality is a cost and

Donny was forced to declare bankruptcy. The next seven years felt like

financial hell. He had a black mark on his record he worried about and worked

every day to overcome. He had trouble getting approved for more credit, and

when he did, he paid higher rates.

All for the privilege of serving his country.

Playing the Credit Game

Dewey liked to play the angles. If there was an opportunity for him to take

advantage of a situation or of someone else he would do so. Especially if it

meant easy money without the need for work.

Recently, Dewey had turned to new credit card and bank account deals. The

FBI called it identity theft and claimed it was the fastest growing crime in

America. Dewey preferred to call it selective borrowing, and it was so easy and

so lucrative he’d wished he had known about it sooner.

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Dewey had learned that by obtaining someone’s social security number along

with basic personal information he could obtain a credit card and a bank account.

The accounts would be in the unsuspecting person’s name but available for the

use and benefit of Dewey, who moved from city to city to ply his special talents.

Dewey had just obtained the personal information from an elderly gentleman

named John Logan. It was all so easy. He called up Mr. Logan pretending to be a

utility company representative. He said he needed the information to update the

company’s files. Mr. Logan was all too nice and willing and forthcoming.

Dewey’s friend could forge a driver’s license to perfection. His friend’s

business used to be geared toward underaged teens who wanted to go bar

hopping. The market now was for sharpies like Dewey. With Dewey’s photo and

driver’s license carrying John Logan’s information and an address controlled by

Dewey, the plan was put in motion. Dewey opened a bank account in John

Logan’s name. He paid a few small bills and maintained good credit for a time.

Then Dewey obtained a credit card in Logan’s name. All was ready to prime the

credit pump.

Read this post for more information about this topic: The Psychology of Debt: What Are The Psychology of Debt 

what is credit system in banking, the credit system in finance, and how the credit system works

And so in this upside-down world where criminality is a cost and

With the credit card, Dewey bought as many electronics as the card would

allow. TVs, stereos, and computers were easily fenced for cash. Dewey felt no

remorse. The credit card companies and the national electronics retail chain

made more than enough money. They could easily afford Dewey’s hit. So could

old Mr. Logan for that matter.

With his bank account Dewey wrote a large number of checks on one

weekend to a number of small retail outlets around town. The smaller stores

didn’t have the ability to check cash availability. It was the weekend. The banks

were closed. They took down John Logan’s driver’s license information and

Dewey loaded up a rental U-Haul truck with his purchases.

By the time the checks started bouncing, Dewey was hundreds of miles away

getting ready for his next selective borrowing.

Unlike the credit card charges, which were absorbed by the credit card

company and passed onto consumers around the world in the form of higher prices, the small retailers Dewey hit were not so lucky. When the bounced

checks came back the retailer was responsible. They were out the money they

paid for the goods they handed over to Dewey.

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what is credit system in banking, the credit system in finance, and how the credit system works

And so in this upside-down world where criminality is a cost and

The scam also cost the John Logan of the world dearly. Calls from the

creditors and collection agencies, even when one is innocent, take their toll. The

crushing financial and resulting emotional stress of a stolen identity is too much

for many to take. For John Logan, a stroke followed. He died shortly thereafter.

The stories of Donny and Dewey illustrate the extremes and the ironies of

credit and debt problems facing so many Americans.

The credit industry actively entices all comers, especially the young and

inexperienced, with the promise of credit. Critics charge their aggressive

practices border on predatory lending, taking unfair advantage of those who

shouldn’t be borrowing. Whatever the case, the easy availability of credit

encourages two types of people to sign up who shouldn’t: those represented by

Donny and those represented by Dewey.

Donny, fresh from college with student loans, two credit cards, and truck

payment, is starting his career on the edge of the credit abyss. If he doesn’t work,

he is in trouble. Dewey, always ready to play the angles, has found a career

taking advantage of the credit industries’ willingness to lend, allowing him to

work causing trouble. To combat the Deweys of the world, the credit industry

responds with rules and rigidity that move the Donnys closer to the abyss. One

missed payment, anytime, for any reason, be it anthrax or cows in the road

slowing the mail, and the machinery of negative credit can start to grind. A

freefall ensues. A number of lives are ruined.

The irony of this scenario is how the credit industry treats each individual.

Dewey is a cost of doing business. His fraud is known and accounted for in their

budgets as an expense factor. The cost is spread out over the entire industry with

millions and millions of consumers footing the bill as increased costs.

Donny, on the other hand, the deserving and ethical individual and a victim

of circumstance, is a casualty of doing business. He had his chance, to argue

with industry experts, and he missed a payment. He will be punished until he can be

trusted once again.

what is credit system in banking, the credit system in finance, and how the credit system works

And so in this upside-down world where criminality is a cost and

inadvertence amount to a crime, it is important to know the rules, the

motivations, and the road map for winning with credit.

FAQ – credit system in banking