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.
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.