Credit cards are NOT bad

There will always be people who consider the use and existence of credit and debt a bad thing. Credit is not bad, however. It lowers the entry cost for things like a house and a car allowing younger people to purchase. It allows business to get started and to absorb seasonal and annual fluctuations that may cause them to dip into the red at awkward times.

On a smaller scale, however, credit cards are also good. They simplify bill paying and money tracking. They provide a buffer for the unexpected. They allow people, particularly young people and immigrants who are high credit risks, to establish credit history so that they can, in the future, finance that purchase of a car or house.

If it were a perfect world they would also be an excellent source of credit for many people with little to no credit history and/or bad credit. The well heeled DC insiders are badmouthing the practices of credit card issuers (mostly banks), and I generally agree, but there are reasons to give pause. Actions that remove many of the more evil aspects of credit card agreements (1 day late? hello, 10% point increase in your rate, never to come down.) are good and fair, and some of them will make it so that credit card issuers will be sensible in how they hand out credit cards. Others will mean, as the industry is whining, that less credit will be available to people at the bottom who need it.

As an example of silly practices: while still in college and without a set job or any declared income I had a credit card with a limit of $9500! I got it my first year in college, did not have my parents sign on, and for those first few years, they would just randomly increase my limit (it went over $20k in grad school before I finally called them and asked them to knock it off).

The risk of giving credit (even as little as $100) to those who are high risk is supposedly mitigated by giving lots of credit to people who are low risk. The overall benefits everyone. I have my insanely high limit card that I can turn to in emergency, and the cash back one I can use for most purchases and pay off at the end of each month. Many people may finance a summer vacation or holiday spending on a card that they can pay off over the year, and those trying to get a leg up and a job can get cleaned up and ready for an interview.

The problem is really that this is not how people use credit. In practice, even the middle and upper middle class bought beyond their means to pay off, and they are now the ones (those with good incomes and credit scores) defaulting. This fouls up the risk side and

On the low end, despite the supposed overcompensation with low risk individuals, high risk are often not given access at all (and the current legislation may make that worse) which results in the proliferation of predatory lending practices like payday loans. The absence of credit to the poor contributes to making an impoverished lifestyle more expensive (lots of other things factor in and this is a good read).