Shopping on credit card

Banking and credit card system has probably be on the most difficult thing to manage for us when we arrive from France and certainly something that still continues to question us as an irrational concept.

American and French banking system are completely different as well as the credit management.

Typically, French banks only deliver debit cards. In most cases this is a VISA with a financial limit of debit authorization, which is fixed according your financial situation. If you exceed the limit you have penalties to pay and your card is blocked. Some private credit firm like SOFINCO exists which propose you credit cards with rates in the range of 9-12%. Salesman often proposes them when you want to buy standard consumer goods, like appliances, vacation package, or a car.

So we were and are still very puzzled when the cashier at Heinen’s ask us “Debit or credit’’. For us it is obvious that expenses like buying food for the week have to be paid cash or with a debit card with direct withdrawal.

With time, I realized that a lot of people paid their shopping with credit card. Once I witnessed a situation that surprised me: a person at Heinens had to use 3 different credit cards to pay her cart. My first thought was: are people indebted at such a high point that they cannot afford to buy food? Do they still have any control on their purchase capacity?

Then came the time for us to buy our house. There we learned about the credit score system and the paradox of the concept.

In France, you are a reliable person if you do not have more than 30-35% debts or in other words, the less credits you have, the more reliable you are. If you want to buy a car or a house and need to get a credit from your bank, you will be eligible only if you do not exceed this limit. This limit is considered as the maximum amount of money a household can spend for credit reimbursement while keeping their capacity to pay other expenses like insurance, food, schools…

In the United States, you have to prove that you have credits and you are able to pay them as a proof of reliability. This is recorded under credit score. It is common here to receive in your mail box proposals from private credit companies or banks saying “ Congratulation, You have been pre-qualified for a Platinum card with a reserved credit line...’’ Then in very small characters at the bottom of the page, you can read that the annual interest rate is 19.99%!!!

A real paradox to us. Arriving from France, we had no credit history, no debts with the financial capacity to pay our house cash, but not eligible for a credit because we had no credit history !!

To me, this partly explains the financial crisis we are plunged in. Living in a consuming society supported by a dangerous credit system, people have lost track on their financing capacity. Then devastated by too many debts to reimburse, they have all kinds of proposal coming from credit companies. Because people who had contracted these kind of credit did not have financial back up, credit companies collapsed, letting thousands millions of dollars unpaid to banks with the financial crash we have witnessed the lat two years.

I think a profound reappraisal and a new look on our consumer behavior would be essential. Even if consumption is a key part of the economy, rules should be established and basic principle introduced in the education to teach people not to purchase if they cannot afford it.