A Diamond’s Eye View of the World

a multi-faceted look at the middle east, and the middle west

giving credit [cards] where credit is due

Posted by adiamondinsunlight on December 9, 2008

Reading a newspaper article about the return of layaway yesterday on the train prompted me to think a bit about the differences I have seen between credit cards in the US and in the Arab world.

In the United States, there has been for at least the past seventeen years (the length of time since I had my first credit card) no correlation between income and credit limit. My first credit card had a $1000 limit, but that soon jumped to $5000 – far more than my income as a junior in high school, even if I did have a part-time job.

credit_card_logo

Today my credit limit is a substantial multiple of that. I’ve never used it all – in fact, I’ve never come close to a $5,000 balance. But I could – and so could many other Americans, with incomes much less (and much greater, of course) than mine.

I don’t think of this as a particularly healthy system, and part of me thinks that the credit seizure happening today is a much needed correction. But when I learned how credit card allocations work (or worked – this was two years ago) in the region, I suddenly found myself tut-tutting and thinking of how much more liberal our system is.

Why? Because in much of the Arab world, credit card limits are (or again, were) tied to their holder’s monthly salaries.

I learned this one evening while out watching a football match with two friends, R and M. M worked for a bank, and R was interested in increasing his credit card limit.

Well, M said. What’s your salary?

I nearly died of embarrassment, on both their behalfs. There were five of us at the cafe, and I knew I would be mortified if I had to suddenly announce my salary in front of four others – even if they were friends.

Oh, its Xxxx, R replied off-handedly.

Hang on, M said, pulling out his mobile phone to use as a calculator. He punched in a few numbers, frowned, punched in a few more, and finally said:

Well, I think if you switched to our bank we could give you Xxxx as a credit limit.

And that was it. No blanket offers in the mail. No notices that “your credit has been automatically increased to [astronomical amount x]”.

At the time, I found this system totally off-putting. I couldn’t imagine having to submit my paystubs to a bank in order to get a credit card – or being judged unworthy of a substantial credit limit.

But now I’m wondering whether my response wasn’t more than a little short-sighted. If U.S. credit card companies had offered fewer cards to those unable to hold them, or tied credit limits even loosely to ability to pay, I wonder how many people today would feel less frightened about the perilous state of their finances.

alnahar

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6 Responses to “giving credit [cards] where credit is due”

  1. M. said

    Lol. I remember when I got my credit card in Leb, I had to open an extra account that had the exact same amount as my credit limit – just in case I didn’t pay 😉 Sounded more like a debit card to me, with just a slight delay in payment.

    At least from observing my friends here in the US, some people here suffer from something more than just having large credit limits: they can’t seem to understand the concept of “living within your means.” They get X salary, spend 1.5X, and don’t pay back their credit – thus suffering interest rates – and they actually seem ok with that. Don’t want to generalize though, and I should probably stop rambling 😛

  2. Kheir said

    Hi Diamond, I work for a V I S A issuer 😉

  3. Kheir – don’t get me wrong: I love having a credit card! To me it feels much safer than carrying cash around, especially when I am traveling. But I know how many “get another credit card TODAY!” applications I get in the mail – and they make me worry for people who are already facing financial troubles, who may be tempted to get a second card, and then a third, and then …

    M, I was going to mention the credit-but-really-debit cards but didn’t want to confuse the issue. Those used to totally boggle my mind. Why not just call them “debit cards”, I remember wondering.

    As for the people who live in debt … partly I think its bad decisions, and partly I think its social pressure. We live in a culture in which people feel (and are encouraged to feel) that they “deserve” to enjoy the newest appliances, the latest electronic toys, etc. Its hard to step back and say: I might “deserve” it, but I can’t afford it – and the debt I would take on isn’t worth it for me.

  4. intlxpatr said

    One time, about a year ago, I had to call and get our limit raised – we were travelling, and I realized another car rental and hotel would put us over the limit. It wasn’t a problem, we always pay everything off every month. They raised the limit as I requested – and then, this year, a year later, raised it again, without my asking.

    It’s handy having credit – but we only use one card, and never very much. I think we should have more controls over how much total credit is given to anyone. Look what overy-buying did to the housing market. We could be on the verge of a similar problem in the credit card area. The worst is for college students, where they are urged to take on far more credit than they need, at a time in life when they have needs and wants, but not a lot of experience living within their means. It’s too much temptation, and it’s also teaching them to rely on credit. Aarrgh!

  5. hi khalti! it is handy to have a credit card, and I am grateful to have one – but I agree that marketing to college students and others without much credit and/or experience is almost unfair to them – too much temptation!

  6. intlxpatr said

    Ummm. . . . err. . . would you correct that “overy-buying” to over-buying, please, please?

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